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Antitrust Regulation Applied to Problems in Cyberspace: iTunes and iPod

By
EDDY
Hsu*
Perhaps the single greatest benefit of the internet is that enormous volumes of information can be shared with negligible incremental cost to internet users., Information from the internet is stored digitally as "exact copies" of the original information posted, with no loss of quality incurred by the transmission.2 At the same time, the internet is a breeding ground for copyright infringement because the dual combination of lossless quality with zero transaction costs allows digital media to be shared effortlessly. Thus copyright infringement, 3 such as online music piracy, is rampant on the internet. The recording music industry claims that these multitudes of cop4 yright infringements result in multi-billion dollar annual losses. Specifically, internet users are downloading and distributing illegal copies of music in digital formats.5 After each illegal download, an internet user has a free copy of the music, such that the record label producing 6 the music was not paid and the artist did not receive any royalties. After aggregating the daily infringements, record labels or artists lose substantial sums of money. The danger from such infringement is a lack of incentive to create more music or produce any records, an out7 come presupposed to harm society. This Comment will briefly review past solutions to online music sharing and the latest option offered by Apple, Inc. in the form of iTunes and the iPod. The Comment begins with a brief review of antitrust laws, since Apple's solution will later be examined through an antitrust lens. Specifically, this Comment will explore possible antitrust tying violations in Apple's attempt to tie the online iTunes music
* Class of 2006. B.A., University of California at Berkeley (1996). 1. Internet service providers usually charge a single flat fee on a monthly basis for unlimited access to the internet. 2. A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1011 (9th Cit. 2001) (hereinafter "Napster I). 3- See Online Piracy and Electronic Theft, RIAA, at http:/www.riaa.com/issues/piracy/online. asp (last accessed Mar. 10, 2005) (claiming $4.2 billion in losses to music piracy worldwide). 4. Metro-Goldwyn-Mayer Studios Inc. v.Grokster, Ltd., Petition for a Writ of Certiorari, available at http://www.eff.orgIPIP2P/MGM vGrokster/20041008_Groksterfinal-petition.pdf (last accessed Mar. 10, 2005). 5. Napster 1, 239 F.3d at 1013-14. 6. See Online Piracy and Electronic Theft, supra note 3 (provides an overview of online music piracy). 7. See U.S. Const. Art. I 8, cl. 8. The Framers of the Constitution recognized the need for copyright to spur creativity.
117 HeinOnline -- 9 Intell. Prop. L. Bull. 117 2004-2005
Copyright 2004-2005, Intellectual Property Law Bulletin
INTELL. PROP. L. BULL.
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store to the iPod in that the subscription to iTunes forces a consumer to purchase an iPod to enjoy the downloaded music on a portable music player.a
I.
A. COPYRIGHT AND THE ORIGINS OF ITUNES AND THE IPOD
WHY AND HOW COPYRIGHT INFRINGEMENT OCCURS
Individuals downloading music justify the infringement as they perform each required step. The first step, transforming music from CDs to a portable digital format, such as the MP3 format, 9 is justified because a user is shifting personally owned music to another usable format without distributing the music to third parties. Once music is collected into smaller individual MP3 files, a user can then create customized play lists instead of switching CDs to listen to specific songs. Next, users argue that downloading or distributing the music is justified for individual songs. Users only want specific songs and do not want to pay for unwanted songs by buying a full album. Without an opportunity to legitimately purchase individual songs, a user's only recourse is to illegally download it. The single song is more attractive because downloading is simple and the audio quality can be quite high. Most music is exchanged by using peer to peer (P2P) software, a method of sharing files more or less directly between computers.' 0 An internet user installs a program, such as Grokster, which opens a pora tion of the computer contents to other Grokster users." In return, the user has access to all other computers on the internet with Grokster installed. The user then downloads a copy of the content, such as a song in MP3 format, to the user's own computer. The user has now obtained a copy of the music from another individual (peer) without ever going through the Grokster servers or interacting with the original owner of the music. A real-life equivalent would be allowing a stranger to come into a user's home and copy select songs from the user's personal music collection, where the music copied is an exact duplicate of the original.
8. On Jan. 3, 2005, a similar lawsuit was filed in the Northern District of California. See Slattery v. Apple, Inc., available at http://interactionlaw.com/documentos/Slattery-vAppleComplaint.pdf (last accessed Mar. 10, 2005) (this is a copy of the complaint filed in the case); see also Larry Angell, Apple Hit With Antitrust Lawsuit Over iTunes, iPod, iPodlounge, Jan. 5, 2005, at http://www.ipodlounge. comipodnewscomments.php?id=6022_0 7_0_C (last accessed Mar. 10, 2005). A website has been created for consumers to register for possible class action status in a similar case. See Apple Computer Inc., at https:f/www.lawyersandsettlements.comJcase/ipod itunes (last accessed Mar. 10, 2005). 9. Music in the MP3 file format is highly compressed, taking up less space on a computer with little cognizable loss in quality. See Scot Hacker, How MP3 Works: Inside the Codec, availableat http:// www.mp3-converter.com/mp3codec/ (last accessed Mar. 10, 2005). 10. The online encyclopedia Wikipedia has an excellent explanation of how P2P file sharing systems operate, See Peer-to-peer, at http://en.wikipedia.org/wiki/Peer-to-peer (last accessed Mar. 10, 2005). 11. See How Grokster Works, at http://www.grokster.com/us/help/aboutp2p.html (last accessed Mar. 10, 2005).
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B.
ITUNES, IPOD AND ANTITRUST
PREVIOUS ATTEMPTS AT STEMMING COPYRIGHT INFRINGEMENT HAVE MIXED SUCCESS
The recording industry has tried to prevent individual users from infringing on copyrighted music with mixed success. For example, Sony sells some CDs with built in copy protection designed to prevent illegal copying between computers by forbidding a second computer from playing the music without an additional purchase. 12 While Sony's solution is innovative, the protection requires the first computer to have an internet connection and online regstration by the owner. However, Sony is abandoning the program after two years and twenty million CDs because the solution is unpopular and technologically cumbersome. 13 Sony claims the anti-piracy message has been well arpiracy still ticulated so the protection is unnecessary, but with online 14 rampant, the message must have been a soft whisper. More recently, the recording industry has resorted to suing individual infringers, but the outcome has been a public relations nightmare. For example, the RIAA was forced to withdraw its case against a 65-year-old grandmother it accused of downloading hip hop music through KaZaA file sharing software, after it was revealed that she owns only a Macintosh computer which cannot run KaZaA.1 5 The media latches on to such stories by giving the impression that the recording industry is biting the hand that feeds it. Besides attracting negative media attention, suing individuals is expensive because of the high cost to litigate, offset only by the promise of relatively small damages. Any deterrent effect is minimal because the piracy is so widespread, the industry would have to sue thousands of people to make an impact. Record companies have had limited legal success in shutting down the means of trading and downloading the infringing materials. In MP3.com, a district court ruled that a company which allowed users to store MP3 music online was liable for copyright infringement. 16 The stored online versions of the music were held to be illegal copies of the music, regardless of whether the user legally owned the CD, since the music the defendant was distributing was not necessarily an exact copy of what the consumer had purchased. 17 MP3.com's revenue came
12. Derek Caney, Sony Music Sings New Copy-protection Tune, Reuters, Nov. 10, 2003, available at http:f/www.forbes.com/home-europe/newswire/2003/11/lOIrtrll41313.html (last accessed Mar. 10, 2005); see aLso Sony to Add Download Function to Music CDs, MacCentral, Nov. 20, 2002, at http:// www.macworld.com/news/2002/11/20/sony/ (last accessed Mar. 10, 2005) (explaining the Sony scheme whereby a user is allowed to copy the CD once if an internet connection is present, but must pay for additional copies). 13. Sony Nixes Copy Protected CDs in Japan, Associated Press, Oct. 5, 2004, available at http:// www.forbes.comlhome/feedsap/2004/10/05/ap1577005.html (last accessed Mar. 10, 2005). 14. Id. 15. Recording Industry Withdraws Music Sharing Lawsuit, EFF, at http://www.eff.org/IPIP2P/ 20030924_eff pr.php (last accessed Mar. 10, 2005. 16. UMG Recordings, Inc. v. MP3.COM, Inc., 92 F.Supp.2d 349, 350 (S.D.N.Y. 2000). 17. Id. 350-51.
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from the user's subscription for access to copied music, which the court recognized as just another media channel for copyrighted material.S If MP3.com wanted to act as a source for copyrighted material, then MP3.com would have to respect the copyright owner and pay for copyright access. 19 In Napster II, a software company was held liable for vicarious copyright infringement for providing software which allowed internet users to share music. 20 Specifically, the court recognized that Napster's software had the ability to terminate access to known violators, and the server-side index of illegal music indicated that Napster knew of the violations and did not do enough to stop them. 21 In shutting down Napster, the recording industry cut off a major channel for music sharing, thereby curbing copyright violations. However, these successful efforts to stop copyright infringements hit a road block with Grokster.22 The Ninth Circuit did not find the software company liable for vicarious or contributory copyright infringement because Grokster's software, unlike Napster, did not have a means to restrict access by individual users or have the ability to stop the copying. 23 The court recognized that Grokster could neither stop individual infringements nor did they know of any infringements because the users connected directly to another peer computer without ever going through a Grokster server. 24 Grokster continues to distribute the same software today, enabling users to illegally download 25 music and other files.
C. APPLE OFFERS A SOLUTION TO CURB COPYRIGHT INFRINGEMENT
As mentioned above, a prime reason for copyright infringement is the lack of alternatives to obtain a specific song without having to buy the entire album. The recording industry lacks an efficient method for distributing individual songs in the retail market. Apple capitalized on this inefficiency by introducing the iTunes online music
store ("iTunes").26 The online store allows users to download songs
individually or as albums. 27 Since no CD production costs are in18. Id. at 352.

19. Id. at 353. 20. A&M Records, Inc. v. Napster, Inc., 284 F.3d 1091 (9th Cir. 2002) (hereinafter "Napster II"). 21. Id. at 1098. 22. Metro-Goldwyn-Mayer Studios, Inc., v Grokster Ltd., 380 F.3d 1154 (9th Cir. 2004). 23. Id. at 1163-65. 24. Id. 25. The Supreme Court has granted certiorari but has, as of this writing, not yet issued a decision. See MGM Studios, Inc. v. Grokster, Ltd., 125 S.Ct. 686 (U.S., 2004); see also Lorriane Woetlert, Why the Grokster Case Matters, BusinessWeek Online, Dec. 27, 2004, at http://www.businessweek.com/magazine/content/04_52/b3914038_mzOll.htm (last accessed Mar. 10, 2005) (summarizing the stakes involved in the Grokster litigation). 26. See iTunes, at http://www.apple.com/itunes/ (last accessed Mar.10, 2005). 27, Id.
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volved, the songs or albums are less expensive and available entirely 28 on demand. iTunes is Apple's attempt to address online music piracy and provide a revenue option by selling copyrighted music over the internet. A song purchased through iTunes is downloaded by the purchaser to a destination computer. 29 The songs are encoded with the Advanced Audio Coding ("AAC") codec 30 which is based on MPEG-4 digital compression technology. 31 Apple claims that "AAC provides audio encoding that compresses much more efficiently than earlier formats such as MP3, yet delivers quality rivaling that of uncompressed CD 32 audio. A consumer may only download the music after agreeing to the iTunes "Terms of Service," which include usage rules limiting the number of times the music may be burned into CDs, the number of devices which can simultaneously store the downloaded music and an acknowledgment that the purchased music is encrypted to prevent violation of the usage terms.33 Additionally, Apple retains a connection to the downloaded music by requiring consumers to agree that if iTunes is discontinued, access to the downloaded music may be limited or stopped. 34 iTunes thus limits distribution of the downloaded music by having the user has agree to legal and technological limitations.
D. APPLE'S CATCH IS THE IPOD
While Apple effectively addresses copyright infringement with the iTunes music store, possible antitrust issues arise with aftermarket peripherals. Consumers want to do more with their music than just listen to it on their computers. For example, consumers may want to listen to their purchased music while working out, traveling, or sitting at a park. Digital audio compression formats such as MP3 and AAC allow for massive amounts of music to be stored on players smaller than the palm of a hand. However, under the iTunes' Terms of Service, a consumer is limited to "five Apple-authorized devices at any
28. See William W. Fisher III et al., iTunes: How Copyright, Contract,and Technology Shape the Business of Digital Media - A Case Study, Berkman Center for Internet and Society, Mar. 30, 2004, available at http://cyber.law.harvard.edu/mediauploads/53/GreenPaperiTunesO3.04.pdf (last accessed Mar.10, 2005) (presenting an in-depth analysis of the iTunes business model). 29. See iTunes. Easy to Buy, at http://www.apple.comitunes/store/buy.html (last accessed Mar. 10, 2005). 30. A "codec," the word for which is a portmanteau of the words "coder" and "decoder," can be any technology for encoding and decoding data. See Codec, Wikipedia, at http://en.wikipedia.org/wikil Codec (last accessed Mar. 10, 2005). 31. iTunes: About Advanced Audio Coding (AAC), at http://docs.info.apple.com/article.html? artnum-93012 (last accessed Mar. 10, 2005). 32. id. 33. iTunes Music Store Terms of Service, at http://www.apple.comlsupportl/itunes/legal/terms.html (last accessed Mar. 10, 2005). 34. Id. at section 9.
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time,"3 5 and the only portable music player authorized is the Apple iPod portable music player ("iPod").36 While the selection for portable music players is broad and includes CD players, other MP3 players, and MiniDisc players, the iPod has a unique feature which no other player can claim. iPod is the only player licensed by Apple to play music securely encoded with Apple's AAC codec. 37 This AAC codec exclusivity requires consumers to buy an iPod if they want to be able to listen to music purchased from iTunes on a portable music player. Furthermore, if iTunes should cease its service, the iPod will be the only way to continue to hear AAC encoded music outside of the original computer used to download the purchased music. 38 The symbiotic link of AAC encoded music between iTunes and iPod thus raises a possible antitrust violation by creating an illegal tie.
II.
ANTITRUST: THE BACKGROUND ON TYING
The antitrust movement began during the US industrial revolution, when railroad tycoons, oil robber barons, and steel giants absorbed small businesses while reaping monster profits through unconscionable business activity.3 9 Technological innovations in transportation and manufacturing were leveraged to create economies of scale by forming "Trusts." 40 In theory, a Trust stabilizes an industry that is being cannibalized by competition by creating predictable standards in prices and quality. Historically, this stabilization restrained price competition because the Trusts controlled production of goods. 41 Congress stopped these practices by enacting various laws aimed at breaking Trusts and curbing monopoly power, thus antitrust law was born. 42 Today, such naked restraints on trade are rarely practiced. Instead, subtle market mechanisms are employed, which courts wrestle with by testing the impact on competitors and consumers. The antitrust mantra "competition is good," is sorely tested by today's technological innovation because each competitor may put out a product that is technologically incompatible with the rest of the marketplace. Several competitors within a market may invent different technological processes to achieve the same consumer goals. Each
35. Id- at section 9(b). 36. iPod, at http://www.apple.com/ipod/ (last accessed Mar. 10, 2005) (Apple's home page for the iPod). 37. iTunes 4: About Third-party Music Players and AAC File Support, at http://docs.info.apple. com/article.html?artnum=93032 (last accessed Mar. 10, 2005). 38. Although up to five other computers may be authorized online to play purchased AAC, no future machines may be authorized if iTunes service is discontinued. See iTunes Music Store Terms of Service, supra note 33. 39. See Marc Winnerman, The Origins Of The FTC: Concentration, Cooperation, Control, and Competition, 71 Antitrust LJ 1, 6-7 (2003) (presenting a more detailed look at antitrust history). 40. See id. at 6-8. 41. See id. at 8-10. 42. Id. at 1.
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process becomes patented, forcing other companies to invent different solutions to avoid paying licensing fees. Multiple market players seem beneficial for consumers because of competition on price and availability. The actual effect is a fractured market of non-compliant standards, which ultimately leads to consumer frustration. Consumers buy incompatible devices, waste time by trying to make devices compati43 ble, and lose money in the process.
Competitors must act carefully when making any agreement on standards or else risk a violation of the Sherman Act, with serious repercussions such as treble damages or criminal charges.- 4 Section One of the Sherman Act attacks collusion amongst competitors, while Section Two challenges a business who has obtained a monopoly by 45 non-competitive means.
A. A TYING VIOLATION COMBINES SECTION ONE AND SECTION TWO VIOLATIONS
A violation that combines Section One and Section Two is "tying." The Supreme Court has defined a tying arrangement as an agreement by one party to sell a product (the tying product) to another on the condition that the buyer also purchase a different product (the tied product)."46 The flex of monopolistic power by the tying company is the Section Two monopolistic violation because the violator unnecessarily restrains competition in the tied product. The agreement with the consumer for exclusive dealing in the second market is the Section One collusion violation because the two parties have decided to exclude competition from the market. However, only the tying company will be punished, as the consumer was powerless to resist and thus cannot be guilty of a tie. 47
43. Carl Shapiro & Hal R. Varian, The Art of War, 6:10 Wired, Oct. 1998, available at http://www. wired.com/wiredlarchive/6.10/neweconomy.html?pg=5 (last accessed Mar. 10, 2005) (presenting a synopsis of compatibility strategy). 44. The Sherman Act declares that [e]very contract .. in restraint of trade or commerce ... is hereby declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $ 100,000,000 if a corporation, or, if any other person, $ 1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court. 15 U.S.C. 1 (2004). 45. The Sherman Act states that [e]very person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce ...shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $ 100,000,000 if a corporation, or, if any other person, $ 1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court. 15 U.S.C. 2 (2004). 46. Carl Sandburg Village Condominium Association No. 1 v. First Condominium Development Co., 758 F.2d 203, 207 (7th Cir. 1985) (citing Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5-6 (1958)). 47. There is a similar ban against tying in the Clayton Act. 15 U.S.C. 3 (2004). The Act allows a lower standard of proof, but is limited to commodities. Id. Since iTines is an online subscription service and not a commodity, the Clayton Act would not apply.
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In order to establish a tying arrangement violation, a plaintiff must show that: (1) the tying arrangement is between two distinct products or services; (2) the defendant has sufficient economic power in the tying market to appreciably restrain free competition in the market for the tied product; and (3) a not insubstantial amount of 48 interstate commerce is affected. A tying violation is traditionally a "per se" violation where the violation is automatically unreasonable and no defense has been raised. 49 However, recent cases indicate that a tying violation is just a presumed Sherman Act violation and may be rebuttable under a "rule of reason" analysis.50 Under a rule of reason analysis, a court looks at the whole business solution to decide if the restraint is ancillary to a greater good because some restraint on competition is necessary to
51 achieve economic benefits.
B.
ANTITRUST PROTECTS COMPETITION AND NOT COMPETITORS
Tying, on its face, does not seem anti-competitive because a seller should be free to package two of their own products into one sale, or make a consumer buy an additional product that works in conjunction with the first product. Such close ties between products might yield efficiencies ranging from seamless compatibility to single manufac5 2 turer liability because both products come from the same company. However, [t]he Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competi-
tion as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our 53 democratic political and social institutions. Looking deeper, then, a successful tying scheme leads to consumer loss because "tying agreements serve hardly any purpose beyond the suppression of competition."5 4 Tying [denies] competitors free access to the market for the tied product, not because the party imposing the tying requirements has a better
product or a lower price but because of his power or leverage in

another market. At the same time buyers 55 are forced to forego their free choice between competing products.
48. 15 U.S.C. 2. 49. Northern Pacific, 356 U.S. at 8. 50. United States v. Microsoft Corp., 253 F.3d 34, 84 (D.C. Cir. 2001); see also Jefferson Parish Hospital Dist. No. 2 v. Hyde, 466 U.S. 2, 35 (1984). 51. Microsoft, 253 F.3d at 84, 89-90. 52. See Kenneth J. Burchfiel, Patent Misuse and Antitrust Reform: Blessed Be the Tie?, 4 Harv. J.L. & Tech.. 1, 65-66 (1991). 53. Northern Pacific, 356 U.S. at 4. 54. Standard Oil Co. of California v. United States, 337 U.S. 293, 305-306 (1949). 55. Northern Pacific, 356 U.S. at 6.
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The naked restriction on competitive markets causes "tying agreements [to] fare harshly under the laws forbidding restraints of 56 trade." III.
APPLE CREATES A POSSIBLE VIOLATION OF THE SHERMAN
ACT
BY TYING THE IPOD TO
ITuNES
The tie between Apple's iTunes and iPod is a subtle one. A consumer is not required to buy an iPod when subscribing to iTunes. In fact, a consumer may never buy a portable music player, let alone an iPod. However, the lack of this initial requirement to buy an iPod does not foreclose a tying analysis. Recent tying violations are rarely open and obvious but emerge only after the consumer decides to buy a service or product. For example, in the Microsoft case, Microsoft tied the Internet Explorer browser to the Windows operating system.5 7 A consumer would never have seen the tie unless the consumer wanted to get on the internet or tried to get another browser. In Jefferson Parrish, a hospital only allowed limited choices of anesthesiologists, but a patient would not know about the tie unless such services were needed.58 In both cases, the courts recognized that the tie existed before deciding whether the tie was illegal. Similarly, Apple's tie to the iPod does not become apparent until an iTunes subscriber tries to buy a portable music player and discovers the only truly compatible choice is the iPod.
A. ITUNES AND IPOD ARE DISTINCT PRODUCTS
The first step of a tying analysis s to identify the two products as distinct and unrelated, because the basis of a tying violation is the leverage of one product's market power to gain market share for the unrelated product. The two different products involved here are iTunes and the iPod. Each has distinct markets with different competitors, yet they both focus on the same consumer desire: music. iTunes competitors include Sony Music Connect, MSN Music, Napster (revamped since the lawsuits), MusicNow, MusicMatch, WalMart, f.y.e., PureTracks, and audible.com. Each competitor has their own subscription agreement and pricing strategy. Currently, the price for an individual song has stabilized at $0.99 per track across the board, with Wal-Mart having the most liberal usage policies and the cheapest prices at $0.88 a track. 9 Since price is not really a factor, each competitor must look for other incentives to make their service better than the others. Normally, such competition is good for con56. Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 606 (1953). 57. Microsoft, 253 F.3d at 88-89. 58. Jefferson Parrish,466 U.S. at 31-32. 59. See Getting Started with Wal-Mart Music Downloads, Walmart.com, at http://www.walmart. com/swap/tour-faq.jsp. (last accessed Mar. 10, 2005). Although Wal-Mart offers lower prices and more flexibility for transferring downloaded tracks, iTunes is still the market leader.
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sumers because the battle for market share gives consumers the best options at the lowest prices possible. iPod's competitors are consumer product manufacturers such as Sony, Philips, Creative, iRiver, Archos, Pogo, Interactive Media, and Samsung. The portable music players compete on capacity, size, battery life, looks, and compatibility with several music formats. The iPod is amongst the worst in battery life, the most expensive, and the least 60 compatible with other music formats. The presence of different competitors in the iTunes market and the iPod market strongly infers that Apple has two distinct products because each market must have their own strategies based on price and product development. If two products are complementary, then a consumer who buys one product will automatically want to buy the other product without external coercion by the seller. The consumer demands of the two products must be sufficiently independent to create an efficient desire to sell the products separately. 61 Here, a person who subscribes to iTunes does not necessarily need an iPod to enjoy the music, but if a portable music player is desired, iTunes requires the purchase of an iPod to play the music. This requirement is external to the natural demands of a consumer because the need for the iPod stems from the AAC secured format and is not a product enhancement to iTunes. The tying product is the iTunes subscription because the AACencoded music of iTunes blocks the consumer from freely choosing other portable music players. The tied product is the iPod because the consumer is normally free to buy any portable music player on the market until the consumer subscribes to iTunes. The products could be independently viable if not tied through the AAC secured format.
B. APPLE HAS SUFFICIENT ECONOMIC POWER IN THE ONLINE MUSIC MARKET
The second element for a tying allegation is sufficient economic power in the tying market, here online music sales. "The existence of such power is ordinarily inferred from the seller's possession of a predominant share of the market." 62 According to Apple's website, iTunes is "[t]he #1 music download store" based on the number of individual downloads. 63 The inference of market power is admitted by
60. See Elliot Van Buskirk, Five Reasons Not to Buy an iPod, CNET Reviews, Nov. 5, 2003, at http://reviews.cnet.com/4520-6450 7-5102324-1.html (last accessed Mar. 10, 2005) (giving a detailed review of the drawbacks of the iPod, including its bundling with the iTunes music store). 61. Eastman Kodak Co. v. Image Technical Servs., 504 U.S. 451, 462 (1992) (citing Jefferson Parish, 466 U.S. at 21-22). 62. Kodak, 504 U.S. at 464 (citing Jefferson Parish, 466 U.S. at 17). 63. iTunes - Music Store, at http://www.apple.com/itunes/store (last accessed Mar. 10, 2005) (citing Nielson SoundScan as the source of the ranking).
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Apple's own press release. 64 Apple maintains market dominance by having over 1 million music tracks available 65 in AAC compression, which Apple states is more compact and of better quality than traditional music in MP3 format.66 Apple's self proclamation of market dominance should be enough to satisfy the market power element. The presence of numerous online music competitors does not bar a finding of market power. In Kodak, the Court felt Kodak's market power came from the lack of substitutes to counter-balance a Kodak price increase. 67 Like Kodak, competition may exist in both the iTunes and iPod market but the tie allows for non-competitive iPod pricing because of the lack of portable music player substitutes in the iTunes aftermarket. Apple's market power is not based on Apple's price control over online music prices, but rather on Apple's ability to control the iPod market via iTunes.
C. A NOT INSUBSTANTIAL AFFECTED BY THE TIE AMOUNT OF INTERSTATE COMMERCE IS
The final element requires that a not insubstantial amount of commerce be involved. 68 The Supreme Court chose the "not insubstantial" language because the Court did not want de minimis damage amounts to be alleged, but the Court also did not require huge com-
mercial impact. 69 Similarly, a price manipulation by Apple may be minor compared to the overall music market, but the effect on commerce must be appreciative. The Eleventh Circuit has held that
71 $325.00 is insubstantial 70 and that $10,091.07 is not insubstantial. "For purposes of determining whether the amount of commerce foreclosed is too insubstantial to warrant prohibition of the practice,
therefore, the relevant figure is the total volume of sales tied by the
sales policy under challenge." 72 The iPod retails between $299 and $399, and Apple claims that over 2 million iPods have been sold 73. An artificial price hike of $10 dollars per iPod over competitive market price of similar players (amounting to 3% of the iPod price) would yield $20 million of inefficient antitrust gain due to Apple's tying. Meeting a "not insubstantial amount" is thus easily achieved against Apple.
64. Id. Although a self-proclamation of market leadership is not concrete proof of market domination, the statement would definitely be considered an opponent party admission. 65. Id. 66. iTunes 4, supra note 3767. Eastman Kodak, 504 U.S. at 470-471. 68. 15 U.S.C. 2.. 69. Fortner Enterprises v. United States Steel, 394 U.S. 495, 501 (1969). 70. Amey, Inc. v. Gulf Abstract & Title, Inc., 758 F.2d 1486, 1503 (11th Cir.1985). 71. Tic-X-Press, Inc. v. Onmi Promotions Co. of Georgia, 815 F.2d 1407, 1419 (11th Cir.1985). 72. Fortner, 394 U.S. at 502. 73. Over Two Million iPods Sold, Jan. 6, 2004, at http://www.apple.com/prlibrary/2OO4/jan/ 06ipodmomentum.html (last accessed Mar. 10, 2005).
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iTunes is an internet-based music service, so subscriptions are not confined within a single state. The interstate commerce requirement is met because the music can be downloaded by any person in any state even though Apple is headquartered in Cupertino, California. 74 In addition, the iPod may be purchased online from a variety of retailers who will ship to different states. The marketing, sales, and online availability of the iPod would more than meet any stream of commerce analysis needed to establish interstate commerce.
IV.
ANTICOMPETITIVE ACTIONS: THE PER SE VIOLATION AND THE
RULE OF REASON
Once the tie is found, the next step is to analyze if the tie is a violation of antitrust laws. For the Sherman Act, if the main goal of the market restraint on competition is to raise prices, allocate the market, or acquire economic power, then the restraint is illegal "perse. ' '75 If the market restraint is ancillary to a business contract, the courts will use a "rule of reason" analysis. 76 Courts will decide if the restraint is reasonably necessary to achieve a legitimate business purpose. 77 Traditionally, a tying offense is a "per se" violation, but recent cases have indicated a rule of reason analysis is also needed.78 According to the following analyses under both "per se" and rule of reason approaches, Apple's tie would be violation.
A. THE PER SE VIOLATION: THE INABILITY TO TRANSFER ITUNES MUSIC EXCEPT TO AN IPOD LEAVES CONSUMERS SUBJECT TO INEFFICIENT PRICING
1. Apple Encourages the Purchase of Music from iTunes but Limits Where the Music Can Be Played
iTunes' user agreement paves the way for the tie to the iPod because Apple restricts any competitors. Apple's competitive advantage is two-fold: an expansive music collection and the AAC encoded software. Apple's encouragement to download individual songs instead of purchasing whole albums goes straight to the heart of the demand for downloadable music. iTunes has a competitive advantage because their large music catalog has songs unavailable on any other site. Consumers are drawn to iTunes because of the extensive availability. Apple claims the AAC encoding is better because files are smaller than MP3s, making it more enticing than competing codecs. 79
74. How to Contact Us, at http://www.apple.com/contact/ (last accessed Mar. 10, 2005) (giving the corporate address for Apple Computer, Inc.). 75. Jefferson Parrish,466 U.S. at 9, fn. 10. 76. Microsoft, 253 F.3d at 59 (declaring that the court must balance whether the "anticompetitive harm of the conduct outweighs the procompetitive benefit"). 77. Id. at 94. 78. Id. 79. See Codec, Wikipedia, supra note 30.
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However, the music purchased online is encoded in AAC with security features. This security feature limits where the music can be played, and on what device. Apple has limited use of the downloaded music to five approved devices, ranging from CDs to other computers with an iTunes subscription.80 Apple's encryption of music via the AAC format attempts to balance the Sony Betamax approval of time shifting8 ' with the Digital Millennium Copyright Act ("DMCA").82 In Sony, the Court allowed the copying of TV shows to Betamax tapes because the shows were originally free to watch and no real loss was incurred by the copyright owners.8 3 Apple recognizes that consumers who download music from iTunes may wish to "space-shift" the music to a variety of areas such as backup drives, a second computer (such as a desktop to laptop), or a portable music player. Apple thus allows such shifting in limited amounts. By allowing space shifting but limiting it to only five devices, Apple is creating a contractual allowance to the DMCA. Defendants in DMCA violation suits have consistently lost when copyrighted music has been shifted to another medium.84 By limiting downloaded music from iTunes to just five subsequent transfers, Apple creates an artificial limit where the Sony holding is allowed and the DMCA is not violated. If a consumer space-shifts four times by sharing the music among four devices, Apple's contract does not invoke a violation of the DMCA because the consumer is authorized to do so. If a sixth device contains the music, then a violation occurs as unauthorized distribution. Consumers are thus given an option to enjoy the music within limits. Apple uses technology to aid enforcement of the contract by creating an internal control where each device containing iTunes music must be registered to the Apple iTunes server. 85 Once five machines have been registered by the subscriber of iTunes, no more will be allowed.8 6 iTunes will not allow the downloaded music to be space shifted. Thus the law does not need to enforce the agreement, technology does. The five machine limitation does not apply to the iPod deSee iTunes Music Store Terms of Service, supra note 33. Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 451 (1984). 82. 17 US.C. 1201 (1999) (banning the circumvention of electronic access controls for copyrighted materials). 83. Sony, 464 U.S. at 451. 84. See MP3.com, 92 F.Supp.2d at 352 (where courts did not allow online storage of music even if owner could prove they owned the CD); see also Napster 11, 284 F.3d at 1097 (where a third party creator of P2P file sharing was held in violation because it held an index of music to be downloaded); cf Grokster., 380 F.3d at 1163 (where third party P2P file sharing was not in violation because no content was ever held by defendant's servers). 85. iTunes 4: About Music Store Authorization and Deauthorizationat http:/Idocs.info.apple.com/ article.html?artnum=93014 (last accessed Mar. 10, 2005). 86. Id. 81. 80.
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vices because the iPod does not need to be registered.8 7 Downloaded music may be space-shifted to any number of iPods since the iPod does not need the authorization that a computer needs. A paradox is created because Apple acknowledges the need to curb the spread of downloaded music but opens the floodgates if the medium is the iPod. This paradox takes credibility away from Apple's copyright infringement solution because a downloaded song can be shared among hundreds of iPods and the artist only receives royalties for one copy of the song. This financial loss by the artist is the basis of copyright infringement. 2. Apple May Charge Higher Pricesfor the iPod because iTunes Subscribers Have No Other Options Once a consumer subscribes to iTunes, the tie to the iPod is complete. Apple creates a reliance on the AAC format for space-saving and quality to create a superior downloaded music product. However, the same unique quality creates the tie between iTunes and iPod. Since the iPod is the only portable music player allowed to play AAC music from iTunes, consumers are forced to buy the iPod if they want listen to music on a portable music player. The tying created by Apple between iTunes and the iPod means consumers are barred from purchasing other portable music players because such players would not play music downloaded from iTunes. Consumers cannot enjoy purchased music in the method they choose. Without the ability to choose different portable music players, Apple has effectively created a barrier to the market. Competitors to the iPod are denied the market of iTunes subscribers because their products are incompatible by Apple's intentional design. The forced incompatibility by Apple is an artificial market barrier which is anticompetitive and the primary violation of the Sherman Act. Such intentional artificial barriers were held to be illegal ties in the Kodak case. 88 In Kodak, independent service providers sued Kodak for being anticompetitive in tying the purchase of aftermarket repair parts of copiers to service contracts for the copiers. Specifically, Kodak denied the service provider sales of aftermarket parts without a service contract.8 9 The Court held that the parts and service market 0 are separate, and that Kodak created an illegal tie between the two. 9 Consumers who just need a part cannot be forced to buy unwanted service. 9' Apple's violation is similar because consumers who want to space-shift music are forced to purchase an iPod over other portable
87. The user agrees to a contractual obligation not to share the music on more than five iPods, but the restriction is not technologically enforced through AAC secured encoding. See iTunes Music Store Terms of Service, supra note 33. 88. Kodak, 504 U.S. at 483. 89. Id. at 458-59. 90. Id. at 482. 91. Id. at 472-73.
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music players. Consumers are denied a choice because choosing a competitor means the purchased music from iTunes cannot be enjoyed and the purpose of the portable music is taken away. Like Kodak, iTunes ties a consumer to the iPod even though two distinct product markets exist. 3. Apple's Tying of the iPod to iTunes Is a "PerSe" Violation per Kodak The tie between iTunes and iPod results in a per se violation. Kodak ultimately held that since the parts market is separate from the service market, Kodak's tie between the two products was a willful attempt to gain monopolization in the tied service market through the economic power of the tying parts market. 92 The tie was a per se Section One violation because the consumer and vendor made a contract to deal exclusively which served no market purpose. However, the only real beneficiary was Kodak who gained a monopoly in the tied product market. The Section Two violation resulted from the acquiring of monopoly power. The insidiousness of the tying product's market power allows the "sledgehammer" of Section Two remedies which 93 can be treble damages. In the present Apple example, iTunes currently enjoys a hefty if not monopolistic market share in the online music industry. Adding the isolation of AAC security, Apple completely owns the portable player market within iTunes subscribers, just like Kodak completely owned the Kodak copier parts market. While Apple does not necessarily require the purchase of an iPod, Apple excludes all other portable music players from playing the iTunes downloaded music. Such exclusion requires the purchase of an iPod to space-shift the music. This requirement is a tie like the one in Kodak where a consumer would not purchase competing service contracts after buying the Kodak bundled parts and service contract because of the extra costs incurred to buy a useless service contract. Here, an iTunes consumer will not purchase a non-iPod because the purchase will be useless to the consumer. The exclusion is a "per se" Section One violation because the consumer and Apple have conspired to lock out other competition. However, Apple is the only party benefiting because the consumer is not getting a price break or a better product. The tie allows Apple to leverage the iTunes monopoly to create greater market share for the iPod. The flexing of one monopoly to create another goes against the very essence of antitrust ideology. Competition is stifled and consumers are unable to find the best prices or best products. Instead, there is only one product and consumers are
92. Id. at 482-83; see also 15 U.S.C. 15 (2004) (stating that "any person who shall be injured... by reason of anything forbidden in the antitrust laws may sue . . . and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee"). 93. 15 U.S.C. 15.
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at the mercy of Apple's pricing decisions. To prevent the violation, like in Kodak, the "sledgehammer" remedies of Section Two of Sherman Act are warranted, such as treble damages or spin off of the iPod division from Apple. 94
B. THE RULE OF REASON: THE IPOD'S INABILITY TO PLAY A VARIETY OF MUSIC CODECS CREATES AN ARTIFICIAL BARRIER TO ENTRY
1. Recent Developments in the Microsoft Case Permit a Rule of Reason Analysis in Tying Arrangements Tying is considered a "per se" violation, thus barring any defense once the elements are proven. However, the recent sociopolitical climate has favored tying in limited instances. The courts have reflected this attitude by allowing a rule of reason analysis to tying contracts. The clearest example is the Microsoft case, where the U.S. government and several States alleged violations of the Sherman Act in Microsoft's bundling of Microsoft Internet Explorer with the Microsoft Windows operating system.95 The D.C Circuit court agreed with Microsoft's argument that "the separate-products element of the '96 "per se" rule may not give newly integrated products a fair shake. Specifically, the court felt the separate products test failed to screen out cases where the integration is commonly done by competitors without market power. 7 The court acknowledged that, if consumers really want the two products, then a chilling effect on innovation occurs when a manufacturer cannot harmonize their products because of possible "per se" Sherman Act violations. 98 The court required more judicial experience in the technological markets to analyze the benefits that can result from the tying before banning the tie. 99 By requiring more judicial experience, the court seeks to balance the loss of competition against the efficiency gained by consumers, which is the heart of the rule of reason test. While the Supreme Court has not fully embraced the D.C. Circuit's adoption of the rule of reason application to tying, 10 Apple's tie would be an excellent test case.
94. Id. 95. Microsoft, 253 F.3d at 45. 96. Id. at 89. 97. Id. at 92-93. 98. Id. at 87-88. 99. Id. at 94-95. 100. Jefferson Parrish, 466 U.S. at 34-35. O'Connor's concurrence in Jefferson Parrish called for the abandonment of per se analysis of tying in favor of rule of reason analysis but this is not the majority rule. Id. (O'Conner, S.D., concurring). The Microsoft case was settled before reaching the Supreme Court so the matter is still unresolved.
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2. Under a Rule of Reason Test, Apple's Tie between the iPod And iTunes Is a Technological Innovation Under the rule of reason, courts are allowed to examine the economic benefits of the tie instead of the pure impact on competition. Microsoft swayed the court with the premise that a "good tie" is more like a technological innovation.", Consumers would benefit from the integration because consumers' choices are not really curtailed and 1 02 consumers gain a surplus from seamless integration of the product. Since consumers could still choose other browsers and the Windows OS was enhanced by the Internet Explorer integration, the court reby manded the case for deeper analysis of the competitive loss borne 10 3 This consumers compared to the benefit gained by integration. deeper analysis echoes the rule of reason analysis. For Apple, the "good tie" analysis under the rule of reason is a strong defense to a tying violation because consumers benefit from the harmonization of iTunes with the iPod. The main problem with downloadable music is controlling illegal proliferation of the music. A portable player is a dangerous medium because music can be transferred between computers unless restricted. iTunes addresses the threat by limiting playback of downloaded music to play on five different mediums. The music purchaser is granted multiple mediums to play downloaded music without violating the law because the purchaser must register each medium online. Unlimited iPod transfers do not disrupt the AAC encoded security measures. The music transferred from an iPod still retains the security encoding and the destination machine must be registered to play the music. The music can never be transferred from the iPod to another computer in a playable format without the embedded security. Thus the iPod is harmonized with iTunes' security measures because a consumer gets to download music to a portable player and copyright infringement is stopped at the iPod. The legitimate sharing of music solves the rampant piracy of copyrighted music material. Apple may claim that AAC security is a consumer benefit because artists get paid and have incentive to produce more music. Lawsuits or prosecution of copyright violators will drop because consumers playing downloaded AAC music have paid for the right to listen and distribute in a limited fashion. Furthermore, honoring copyright law via technology and consumer cooperation is good for society and the future of the industry. Such consumer good must outweigh any detriment from the tying of the iPod. Much like Microsoft's Internet Explorer, consumers may still choose other portable players for
101. Microsoft, 253 F.3d at 89 (where "[tihe per se rule's direct consumer demand and indirect industry custom inquiries are, as a general matter, backward-looking and therefore systematically poor proxies for overall efficiency in the presence of new and innovative integration." (citations omitted)). 102. Id. at 94-95. 103. Id. at 95.
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MP3 music. iTunes will allow AAC music to be burned onto CDs, so
the space-shifting option is still possible. The tie is not absolute because other venues exist. Lastly, if Apple raises the price of the iPod too heavily, consumers will forego the iTunes service for one of their competitors, or try to crack the AAC format. 14 Thus, Apple may argue that market forces still exist to keep the prices of iPods and iTunes in check. 3. The iPod and iTunes Tie Is Detrimental to Competition because an Artificial Barrier to Entry Is Created Under the rule of reason, the tie cannot exclude competition without just cause. When Apple initially released the iPod, the player did not play music encoded in a non-AAC format well. 105 The failure by the iPod to accommodate other music codecs created an artificial barrier of entry to the online music market. Specifically, the iPod's inability to play other music formats meant a consumer had to rely on music from iTunes with the AAC format. All other music formats were locked out of the iPod market creating an artificial demand for AAC formatted music downloadable only from iTunes. If the practice continued, Apple would be guilty of violating the rule of reason test because no true benefit is gained by locking out other codecs. Even if the other formats were of lower quality or less compression efficiency, the consumer may still want to have music in other formats. Locking out other codecs takes away the usefulness of non-AAC music without giving anything back to society. The only effect is to enhance the value of downloaded music from iTunes, which is already at monopolistic levels. While Apple has corrected the iPod incompatibility issue with regard to most codec formats, the iPod is still incompatible with the Microsoft Windows Music Audio codec ("WMA"). 1 06 The WMA format is the standard used on Microsoft's Windows Media Player, which is the default media player for the Windows operating system. In essence, the iPod is still incompatible with one of the more prevalent formats. In fact Apple encourages converting WMA files to AAC file, 1 7 knowing that no portable music player besides the iPod can play AAC encoded music. Under a rule of reason, Apple's encouragement to use of the AAC format reinforces the tie between iTunes and iPod because consumers forego a competitor's standard just to use the tied product. The loss of competitive choice of codecs is not balanced
104. Apple has vigorously protected the AAC encryption. See, e.g., Matt Hines, 'Stunned' Apple Rails Against Real's iPod Move, CNET News.com, Jul. 29, 2004, at http://news.com.com/'Stunned'+ AppleaiIs+against+Real'slodve/2100-1O41_3-5288378.html (last accessed Mar. 10, 2005). 105. iPod: About Compatible Song Formats, at http://docs.info.apple.com/article.html?artnum61476 (last accessed Mar. 10, 2005) (later versions of the iPod firmware allowed the playback of more codecs). 106. Id. 107. iTunes - Import Music, at http://www.apple.comlitunes/import.html (last accessed Mar. 10, 2005).
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by the integration between iTunes and iPod because there is no gain to a consumer except the added work to convert existing files. Should Apple fix the incompatibility or allow other portable players to play the AAC encoded music, then the tie between iTunes and iPod is effectively legal under a rule of reason test. iTunes customers would no longer be forced to buy the iPod. The consumer would gain the benefits of having an integrated product without the restriction on their choice of portable music players.
CONCLUSION
Apple's close tie between iTunes and the iPod via secured AAC encrypted music is Apple's way of addressing both the consumer's desire to space-shift downloaded music and the DMCA's anti-circumvention provisions. While the solution is a valiant attempt to address the copyright issues involved with downloading music, the close tying between distinct products opens up traditional antitrust liability. Consumers find themselves at the mercy of Apple's iPod pricing policy because consumers may not turn to competitors to keep iPod prices in line with market demands. Should Apple decide to increase the price of iPods, the consumer must look for some way to circumvent the AAC security to enjoy their purchased music or pay Apple's price. Antitrust was created because self help by consumers is not a feasible solution. Laws must protect the consumer even if a countervailing interest to prevent copyright infringement exists. In reality, an antitrust case against Apple is very unlikely to succeed. The lack of enforcement options in cyberspace has led to millions of copyright infringements. Technology is mercurial and no one technological solution can dominate but for a brief time. Apple's AAC security is only useful if it works, but once the code is cracked, infringements will begin anew. By the time the Federal Trade Commission brings an action, the technology may well have changed entirely. Additionally, consumers are happy with the iPod. The sale of two million iPods in a fiscal quarter demonstrates the popularity. 10 8 If consumers are happy with the market situation, then class action suits are less likely to gain momentum. Competitors have used the same business model, so competitors suing Apple is not a solution. The lack of injured parties makes private lawsuits doubtful. Finally, the current political climate does not lend itself to an antitrust action. The current conservative nature of the legislative, executive, and judicial governing bodies makes a lawsuit against a major corporation unlikely, particularly given the liberal dispositions of antitrust law. The enforcement branch of the government therefore has
108. Over Two Million iPods Sold, supra note 73.
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little incentive to bring an antitrust action. While a prima facie case of antitrust tying may be established against Apple, recent judicial trends in cases like Microsoft, consumer acceptance of the iPod, and the political pro-business climate all conspire to frustrate such a case.
Metatags and the Sale of Keywords in Search Engine Advertising: Confusing Consumer Confusion with Choice
By
CHARLES MCCARTHY*
This Comment explores the trademark law implications of the use of trademarked terms as website metatags and the sale of trademarked words as keywords by search engines. The debate asks whether, for example, Budget Rental Car can use the term "hertz" in the HTML coding metatags of its website, thus attracting the attention of search engines and, by extension, search engine users when said users conduct a search on the word "hertz." Courts are also struggling to decide whether a search engine can offer trademarked terms for sale as keywords which trigger sponsored hyperlinks and banner ads. For example, can Google sell to Budget Rental Cars the keyword "hertz," so that when a user types the word "hertz" into the search engine, a link or a banner for Budget Rental Cars appears on the search results page? Some have argued that the use of trademarked terms in metatags and in search engine keyword marketing constitutes trademark infringement.' This Comment argues that such uses are not trademark infringement, but rather are (1) uses altogether apart from the scope of trademark law and/or (2) a species of fair use. The first section briefly explains the function of Internet search engines and some general concepts of U.S. trademark law. Section II explores the use of trademarked terms within the HTML metatags of websites, and argues that this practice does not violate trademark law. The third section argues that the sale of trademarked terms as keywords in search engine advertising also does not violate trademark law. The fourth section offers some general observations about the current state of trademark law and advertising. The Comment concludes with a reallife hypothetical that illustrates the arguments set forth herein.
Class of 2005. B.A., Boston College (1996). i. See Google Wins a Round in Ad Case, Wall St. J., Dec. 16, 2004, at B8; see also Note, Confusion in Cyberspace: Defending and Recalibrating the Initial Interest Confusion Doctrine, 117 Harv. L.Rev. 2387 (2004). 137
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I.
A.
INTRODUCTORY CONCEPTS
THE INTERNET AS THRIFT STORE
In order to facilitate jurisprudence, courts have analogized the Internet to a number of offline places and events such as a vast library
or equally-vast shopping mall. 2 The discussion of metatags and
keywords within the search engine context has necessitated its own analogies.3 A popular and fitting metaphor in this context is the analogy of the Internet as thrift store. 4 The thrift store has very large bins, the kind one might dig through in order to find exactly what one seeks.5 Each of these bins is marked with a search term, such as "adidas," "the Clash + MP3," or "directions to Mt. Diablo. '' 6 The bin is filled with everything even vaguely related to that keyword or phrase, and, as a stated goal, the thrift store endeavors to keep the most relevant objects on top. Yet this is often a goal rather than the current state of affairs.7 The contents of the bins are varied and could contain websites, excerpts from books, newspaper articles, radio broadcasts, video, or even student thesis papers. The enormous bins are managed by robots that scurry around the store floor constantly creating, enlarging, and sorting the bins at lightning speed.8 Like the web itself, these bins are not static; they change every time someone does something on the Web. The bins spring into existence the second a consumer clicks "search" on the search engine and then disappear either when the searcher has found what she needed, or has given up. For example, someone might run a query on Yahoo!'s search engine under the term "AJAX." Instantly, a bin is constructed and filled with relevant items. The bin for this term could contain advertisements for Ajax soap, paragraphs from someone's college thesis on Greek warriors, and a website for the Ajax construction company. Toward the bottom of the bin would likely lay an information brochure for Jacksonville, Florida's airport, whose abbreviation code is "JAX." 9 The keyword in this analogy is a request tag that the web site author scripts to tell the robots in which bin or bins the site seeks to be placed (sometimes the robots can be programmed to ignore such requests completely).1 The customer in the store then might encounter Adidas shoes in the "nike" bin, if the shoes had a tag that said "nike." It is important to note that the customer does not see the "nike" tags
2. Reno v. ACLU, 521 U.S. 844, 853 (1997). 3. F. Gregory Lastowka, Search Engines, HTML, and Trademarks: What's The Meta For?, 86 Va. L. Rev. 835 (2000). 4. Id. at 859. 5. Id. at 860. 6. Id. 7. Id. 8. Id- at 861, 9. Of course, even the thrift store metaphor breaks down when one considers the vast amount of searching on the web that is in neither fulfillment nor anticipation of a commercial transaction. 10. Lastowka, supra note 3, at 861.
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METATAGS AND TRADEMARK LAW
attached to the Adidas shoes." The tags are visible only to the organizing mechanisms (the robots) that sort through the vast amounts of material in the store, preparing bins relevant to the customer's 12 search.
B. SEARCH ENGINES
Search engines help Internet users sift through the enormous amounts of information in cyberspace. For many people, an online session for information, entertainment, products, or services begins with a search engine. In the thrift store analogy above, the search engine activates the robots on the thrift store floor to collect that which is sought. In this sense, search engines act as a conduit between the 13 consumer and the products and services the consumer seeks. Like the radio and the television before it, the Internet is a con14 duit of mass communication largely financed by advertising dollars. Online search advertising is therefore becoming an increasingly important component of any company's overall online marketing strategy. In 2004, the estimated expenditure on search advertising was $2.5 billion for US companies.1 5 The importance of establishing and maintaining a presence on the web and reaching consumers through the search engine cannot be ignored. There are hundreds of search engines available for use on the web. Google, Yahoo!, and Microsoft's MSN Search are the three most popular and the focus of this Comment. When, for example, a consumer wishes to research dishwashers, he might type "dishwasher" into a search engine, click "search," and thereafter receive a results page with links relevant to this search on "dishwasher." A manufacturer of dishwashers naturally wants to be somewhere on that results page, as the potential customer could then click through to product information, and eventually purchase the manufacturer's product. Trademark law issues arise, not when one queries the word "dishwasher," but rather when the user employs a trademarked term in his search, such as "Whirlpool," "Maytag," or "Kenmore." Before exploring the trademark issues that arise in Internet search, a brief explanation of trademark law basics is helpful.
C. TRADEMARK LAW BASICS
A trademark is "any word, name, symbol, or device, or any combination thereof.., used ...to identify and distinguish... goods,... from those manufactured or sold by others and to indicate the source
11. Id. 12. Id. 13. See generally Webopedia, How Web Search Engines Work, at http://www.webopedia.com/ DidYouKnowlInternet/2003/HowWebSearchEnginesWork.asp (last accessed Mar. 10, 2005). 14. See Note, supra note 1. 15. Carl Bialik, Sites Profit from Google's Ad System, Wall St. J.May 26, 2004, at B4D.
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of the goods. ' 16 A trademark therefore serves as an indicator of source for consumers. 17 A condensed history of the development of trademarks might begin by explaining that, at one time, a consumer knew the butcher who cut his meat, the baker who baked his bread, and the maker who fashioned his candles. This consumer could always walk down the village lane and look in on the craftsman from whom he would buy his wares, checking on the quality. 18 As economies developed, became more complex and spanned continents and oceans, the consumer could not easily inspect the means by which a product was produced. Thus the trademark serves as an indicator of a particular quality, allowing the consumer to associate the mark with the relative level of satisfaction it brought him. 19 Trademarks also serve their owners by being a prime element in advertising. 20 Some scholars have only as source identifisuggested that the trademarks now serve not 21 ers, but as part of the good or service itself. Today, trademarks can be valuable timesavers for consumers who can rely on distinctive marks to access the products they desire without repeatedly undertaking costly research and investigation. Reducing consumer decision-making costs and promoting the production of high-quality goods and services remain among the primary ends of 2 2 trademarks.
D. TRADEMARK INFRINGEMENT AND INITIAL INTEREST CONFUSION
The most basic example of trademark infringement occurs when there is a likelihood of confusion in the mind of the consumer between a good or service identified by a trademark and an imposter product or service which does not come from the same source as the trademarked item.23 In most cases of trademark infringement, the likelihood of confusion occurs at the time of purchase. 24 Two realities color the application of the likelihood of confusion standard to the web. First, on the web, confusion and change are a modus vivendi. 25 As one commentator has noted, "isn't everybody confused on the Internet? How are we talking about likelihood of confusion here when we're all confused?" 26 Second, much of the activity on the web that
16. 15 U.S.C. 1127 (2000). 17. J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition 2:3 (4th ed. 2001). 18. The village economy of the butcher, baker and candlestick maker is of course exceedingly hypothetical, but serves to illustrate one of the important functions of the trademark. 19. McCarthy, supra note 17. 20. Id. at 3:12. 21. Alex Kozinski, Trademarks Unplugged, 68 N.Y.U. L. Rev. 960 (1993). 22. Note, supra note 1,at 2387 (explaining two main justifications cited in the legislative history of the Lanham Act). 23. McCarthy, supra note 17, at 2:10. 24. Id. at 23:5. 25. Lastowka, supra note 3, at 862. 26. Jeffrey Kuester, Link Law on the Internet A Panel Discussion, 38 IDEA: J.L. & Tech. 197, 214 (1998); see also Lastowka, supra note 3, at 862.
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potentially implicates trademark law does not occur at a point of purchase. As a result,.courts often employ the "initial interest" doctrine, a subset of the likelihood of confusion analysis, to address trademark issues in cyberspace.2 7 The initial interest doctrine posits that the consumer has been confused prior to purchase.2 8 Ultimately, the doctrine is concerned that consumers will be misled, in the fashion of bait-andswitch, into taking an initial interest in the product or service of a firm that is using another firm's trademark or one confusingly similar to
it.29
So far, the doctrine has been recognized by the 2nd, 3rd, 5th, 6th, 7th, 9th, and Federal Circuit courts. 30 The initial interest confusion doctrine has been applied to trademark infringement cases in both the metatag and keyword context. 31 A discussion of trademark infringement and the use of the initial interest confusion doctrine in the context of website metatags and Internet search engine keywords follows. II.
A.
INITIAL INTEREST CONFUSION: METATAGS
WHAT ARE METATAGS?
The architectural language of the typical web page is Hypertext Markup Language ("HTML"), which is not visible to the user but contains all of the content, commands and code that the web browser (e.g. Microsoft Internet Explorer) needs in order to display the page properly. 32 Metatags are discrete sections of HTML code embedded in a web site. 33 The two types of metatags that search engines use to 34 index and rank websites are "keyword" and "description" metatags. A keyword metatag is used to specify the terms contained in the website, while description metatags allow designers to give a brief description of the site's contents in plain English.3 5 Typical search engine results can be based in part on the number of times a search word appears as a metatag in the HTML code of a web site.36 Thus, by using a term in a site's metatags, either as a keyword or within the description, a site operator can attempt to have its site appear near the top of
27. Deborah F. Buckman, InitialInterest ConfuIsion Doctrine under Lanham Trademark Act, 183 A.L.R. Fed. 553 (2003-2005). 28. McCarthy, supra note 17, at 23:6. 29. Id. 30. Id 31. Id. 32. See generally Webopedia, What is HTML?, at http://www.webopedia.com/TERMvI/H/HTML. html (last accessed Mar. 10, 2005). Note that the terms "web page" and "web site" are more or less interchangeable, and will be used as such in the remainder of this Comment. 33. See generally Webopedia, What is Meta Tag?, at http://www.webopedia.com/TERMm/ meta tag.html (last accessed Mar. 10, 2005). 34. Yelena Dunaevsky, Don't Confuse Metatags with InitialInterest Confusion, 29 Fordham Urb. L.J. 1349, 1356 (2002). 35. Id. 36. See generally Webopedia, How Web Search Engines Work, supra note 13.
1NTELL. PROP. L. BULL.
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the list of search results, thereby increasing the chances of a user click37 ing through from that result to their page.
B. "PAGEJACKING" AND "SPAMDEXING:" METATAG ABUSE TWO EXAMPLES OF
There are several different ways metatags are used in an unli39 censed way. 38 The most egregious example is that of "pagejacking." With this technique, a site misleadingly uses description metatags, which operate like product labels. 40 This actually does result in consumer confusion and unlawful diversion of web traffic. Whereas keyword metatags simply allow one to get a site placed in the "wrong" bin, the deceptive description metatags in pagejacking allow pagejackers to mislead web users into "buying" the wrong product. 4 1 This practice is more akin to cybersquatting than search engine manipulation. "Spamdexing" is the practice of filling a search engine index with spam without falsifying the description metatags.42 Spamdexers seek placement under search terms that are unrelated to the content of their pages, but the description metatags identify their sites accurately. 43 For example, a web site offering gambling software might use "George Bush" or "Britney Spears" as keyword metatags, and since some search engines weigh these keyword metatags heavily in relevance rankings, this tactic can entice more viewers to a site and help generate revenue. The use of trademarked terms in spamdexing usually does not produce a likelihood of confusion because spamdexers request a listing in a category dissimilar to any product they sell, so the risk of confusion is much lower.44 Additionally, the terms spamdexers often use are not trademarks themselves. If you search for "beer" or "MP3s" on the search engine, you may wind up with a spamdexer's listing that has nothing to do with MP3s or beer. Early examples of spamdex "misuse" abound. For example, within hours of the untimely death of Princess Diana, many web sites used the term "Princess Diana" in their metatags in an attempt to attract traffic. Most offenders were pornography sites that had nothing to do with Princess Diana.45 The same occurred after the break of the Monica Lewinsky story, where dozens of sites having nothing to do with the story used her name as a metatag. 46 The focus of current
37 38. 39.
40.
Id. Lastowka, supra note 3, at 862. Id. at 863.

Id.
41. 42. 43. 44. 45. 46. Tags, 12
Id. at 864. Id. at 865. Id. Id. at 865-66. Id at 852-53, Ira S. Nathenson, Internet Infoglut and Invisible Ink: Spamdexing Search Engines with Meta Harv. J.L. & Tech. 43, 44 (1998).
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litigation, however, has centered on uses by a direct competitor of a trademark owner. Search engines, as services that rise or fall on the relevancy of their results, have an incentive to keep spamdexed pages off of their listings, and have in recent years developed relevancy algorithms that combat spamdexing (for obvious reasons, they are very reluctant to reveal the measures they take to reduce spamdexing). 4 7 Search engines combat spamdexers in several ways, including relevance filtering, smarter search engine algorithms, giving lower rankings to obvious spamdexers, penalizing spamdexers, and factoring in the 48 number of readers who choose a particular site from a results listing. Programs "learn" from users how terms are related and how relevance is defined. 49
C. "FAIR USE" OF TRADEMARKED TERMS IN METATAGS
Editorial use constitutes the next category of unlicensed metatag use. Two readily apparent examples of editorial use include online newspapers using trademarks in articles about companies, and businesses using competitors' trademarks when comparing products on their websites. Both examples come under the protection of the fair use doctrine. This doctrine, briefly stated, posits that to be held liable, an alleged infringer must have used the plaintiff's trademark as a trademark.50 If a defendant's use is in a non-trademark sense (for example, the trademark is used in a newspaper article about the company), then no one is likely to be confused, and no infringement is
found.51 An exemplary case of fair use is Bally Total Fitness Holding Corp.
52 There, the Bally Corporation v. Faber. sued to enjoin a website oper53 ator's unlicensed use of its trademark in a site which criticized Bally.
The site was entitled "Bally's sucks" and was dedicated to complaints about Bally's health club business. 54 When the site is accessed, the viewer sees the Bally's mark with the word "sucks" printed across it. Underneath, the web site offers complaints about the fitness clubs. 55 In determining whether a defendant's use of a mark constitutes trademark infringement, courts must decide whether there is a likelihood of confusion under an eight factor test.5 6 The eight "Sleekcraft factors" include: (1) strength of the mark; (2) proximity of the goods; (3) simi47. Danny Sullivan, ed., Intro to Search Engine Submission, at http://searchenginewatch.com/ webmasters/article.php/2168011 (last accessed Mar. 10, 2005). 48. Id. 49. Id50. McCarthy, supra note 17, at 3:3. 51. Id. 52. 29 F.Supp. 2d 1161 (C.D. Cal. 1998). 53. Id- at 1162. 54. Id. 55. Id. 56. AMF Inc. v. Sleekcraft Boats, 599 F.2d 341. 348-49 (9th Cir. 1979).
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larity of the marks; (4) evidence of actual confusion; (5) marketing channels used; (6) type of goods and the degree of care likely to be exercised by the purchaser; (7) defendant's intent in selecting the mark; and (8) likelihood of expansion of the product lines.57 The court in Bally did not consider the defendant's website, which offered photographic and web design services, and Bally's health club website to be related goods. 58 However, the court still went through the eightfactor Sleekcraft test and found that the use of the trademarked term within the website's metatags did not create a likelihood of consumer confusion.5 9 In doing the analysis, the court made some interesting comments useful to the issues raised by metatags. In the discussion of factor (6), the degree of care likely to be exercised, the court noted Bally's argument that a consumer may employ a search engine to locate Bally's site, and that the defendant's site might come up within those search results.6 Bally's argued that the consumer might then access defendant's site and mistakenly believe it was in some way connected with Bally's. 61 The court did not accept this argument, however, noting that the defendant used the Bally mark "in the context of consumer criticism. ' 62 The court noted that the defendant did not use the trademark in the domain name, which would present a different issue. 63 Furthermore, the court stated that the average Internet user might want to receive all the information available on Bally, including those opinions which Bally would prefer them not to hear. 64 The court recognized that this conversation was essential to the life of an active marketplace within a free society: "Prohibiting [the defendant] from using Bally's name in the machine readable code would effectively isolate him from all but the most '65 savvy of Internet users. The way search engines operate today allows language to be flexible, where meanings are relative, as opposed to trademark law, which attempts to impose a quasi-monopoly on the meaning and interpretation of some word or expression. The search engine returns items that have any relation to the search term entered. The listing is ranked, to be sure, but it is the user, by clicking on one of the yielded links, who ultimately decides which is most relevant to him. Sometimes a user is surprised at the results that come back to him. Sometimes he finds a better deal. Sometimes he learns something new. The argument for
57. 58. 59. 60. 61. 62. 63. 64. 65. Id. Bally, 29 F.Supp. at 1163. Id.at 1164-66. Id.at 1165. Id. Id. Id. Id. Id.
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prohibition of trademarks in metatags and keywords would deny the user this experience of autonomy and ultimate choice.
D. SAMPLE ARGUMENTS THAT TRADEMARKS AS METATAGS VIOLATE TRADEMARK LAW
The trademark problem explored herein arises when an advertiser lists a registered trademark in the metatags of its site in an attempt to divert consumers to its site. Several arguments exist for finding that this unlicensed use of trademarked terms constitutes infringement. These arguments are explored below. 1. Metatag Wars One argument for finding infringement on the basis of the initial interest confusion doctrine in the context of metatags hypothesizes escalating "metatag wars," where online advertisers devote less effort towards developing useful online presences due to diminished returns on investment. 66 The money that is spent online, the theory goes, will be spent simply trying to manipulate rankings in search engine resultsarather than creating a positive experience for the user. 67 According to Confusion in Cyberspace: Defending and Recalibratingthe Initial
Interest Confusion Doctrine, "diversion of online traffic and potential
business as a result of initial interest confusion threatens, if not a reduced investment by producers in online services in favor of more relatively profitable offline operations, than an overinvestment in features that do not actually make for better quality commercial 6 websites." s This argument fails in two respects. First, any company is free to devote more or less of its marketing dollars to online efforts. Current trends in search engine advertising, including Microsoft's recent entry into the search engine field, suggest that search engine marketing expenditures will continue to grow as an essential marketing channel for
forward-looking companies. 69 Increasing technological and strategic
complexity has not, and likely will not, discourage advertisers from developing effective ways of communicating with consumers that are useful to those consumers and add value to their online experience. In other words, as long as consumers use the Internet, advertisers will develop ways of reaching and servicing them. The best and most useful websites will attract consumers. The Internet's viability as a marketplace will only continue to grow as consumers conduct more of their research and transactions online. Building a better online presence appears to be a necessity of business survival rather than a function of how trademark law will treat metatags. In other words, no
66. Note, supra note 1. 67. Id. at 2402-03. 68. Id. at 2404. 69. Robert A. Guth & Kevin J. Delaney, Growth Engine: Microsoft, Late to Search Party, Seeks to Capture Google's Turf Wall St. J., Nov. 11, 2004, at Al.
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matter how trademark law treats metatags, the company that dedicates resources to building a more useful online experience will theoretically gain competitive advantage over the competitor that refuses to play the Internet game because it costs too much. As more and more consumers use online sources for information, entertainment, and personal transactions, companies will need to use the Internet as an important conduit to the public. Secondly, the supposed overinvestment in features that do not make for better quality websites perhaps misses two important aspects of this consumer-to-advertiser search engine-enabled interaction: the search engine's capability for relevance filtering and the market's demand that the search engine continuously update and improve itself. Consumers will flock to the search engine that yields the most relevant results to a consumer's search. If a consumer enters "White House" into a search engine and gets results having nothing to do with the official home of the sitting U.S. President, the search engine has likely not met the needs of the consumer. The consumer presumably will not return, advertisers will not buy banner ads or keywords with that search engine, and that search engine will die or be consumed by another search engine. The search engine that survives will be the one that recognizes the tricks marketers play to increase their ranking through metatags. The constantly evolving relevancy algorithms employed by the likes of Google, Yahoo! and MSN evolve because the marketplace demands it. In cyber-jurisprudence, one often hears the anti-regulation argument that the Internet and digital media in general represent new technology, a new sphere of human creativity, innovation, and ingenuity. Regulation could stifle that potential and preclude the development of as yet unseen expressions and improvements in technologies. As often as not, this argument lacks specific examples. The ascendancy of relevancy intelligence in search engine algorithms stands as a solid example. If trademarked terms as metatags were outlawed in 1996, would the Google search engine be as smart as it is today? The contemporary search engine recognizes metatags and uses them only as one factor of many in creating search rankings.70 If the operator of a website for used cars, in an attempt to attract business, puts up a site today with code containing one million metatags featuring the word "Coke," the search engine will recognize only one of those metatags in creating this site's rank. It is therefore virtually impossible for this site, even with its large number of "Coke" metatags, to get ranked on a search for Coke unless it had some other Cokerelated content. In addition, today's search engines will often recognize sites that feature popular terms in their metatags, but whose con70. See generally Webopedia, How Web Search Engines Work, supra note 13.
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tent has no relation to those tags, and take them out of the rankings completely.71 2. Metatag Infringement Is Limited to Directly Competitive Products It is argued that metatag infringement should be applied only to 7 2 those cases where a direct competitor uses the trademark of another. If a student writing a paper on Greek warriors typed "Ajax" into a search engine, he might get results for Ajax Soap and Ajax Construction Company along with a site dedicated to Greek myth. The Greek myth site that uses "Ajax" in its metatags is clearly not capitalizing on any initial interest confusion with the soap or the construction company. Obviously, directly competitive products should be a sine qua non of any argument for metatag trademark infringement. Even then, it would be difficult to discern the field of "direct competition." Should Ajax soap's competitors be the only ones enjoined from using the term in metatags? Who are Ajax soap's direct competitors? The most obvious question is: what if a direct competitor wishes to use the Ajax name for purposes of fair use product comparison and, therefore, has "Ajax" in its metatags? Could a maid service that uses Ajax soap use "Ajax" in its metatags? What about a service that used Murphy's Oil Soap? Can a dry mop company use the term "Ajax" in its metatags, while the Wet Swiffer, because it contains a cleaning agent, cannot? These are questions no one should be forced to ponder, and the courts' time and talent would be wasted on making numerous distinctions between trifles without advancing clearer trademark principles or facilitating greater consumer choice. 3. A Search Engine Query Is Analogous to a "Reach" for the Product One of the principal functions of trademark law is to reduce the customer's cost of acquiring information about products and services. 73 For example, brand names help the consumer recognize a product without trying every item on the supermarket shelf.74 It could be argued, then, that when a consumer types a trademark into a search engine online (i.e. typing "Heinz" instead of typing "ketchup") the consumer is choosing on the "basis of brand name to limit the '75 universe of websites at her disposal to that of one specific producer. The argument maintains that conceptually, the user has at this point "reached for the product on the shelves. Through initial interest con71. 72. 73. 74. 75. Id. Note, supra note 1, at 2408. McCarthy, supra note 17, at 2:5. Note, supra note 1, at 2406. Id.
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fusion, however, she is forced (or manipulated) into trying another

one. ,76
This argument fails as well. To refine the above analogy of the supermarket, the search engine is more like a supermarket stock clerk. A consumer walks into the store and asks for the location of the Coca-Cola. The store employee reports that it is in aisle seven, middle of the aisle. Now imagine that Pepsi, through a contractual arrangement, has paid the supermarket to place it right next to Coke in the middle of the soda aisle. In the contract, the trademark "Coke" is used over and over again. Has Pepsi committed trademark infringement if the consumer notices Pepsi as he makes his way to the Coke? The consumer walks to the aisle where many types of soda are available on the shelf, including Coke. He sees the Coke, but he also sees a host of other sodas from which he can choose. Has the store, by placing Pepsi next to the Coke, created initial interest confusion in the consumer? Finding initial interest trademark infringement when one enters a trademark into a search engine implies that one or all of the following are true about the above scenario: (1) Pepsi violated trademark law by using the Coke trademark in requesting where it wanted to be on the shelf; (2) the supermarket violated trademark law by using the Coke trademark in selling Pepsi the ability to do this; and/or (3) the supermarket, through the person of the clerk, violated trademark law in its failure to put blinders on the consumer as the clerk led him through the store and deposited him in front of the Coke. . The person who enters a trademarked search term into a search engine is not necessarily reaching for that product in the shelf, to the exclusion of all else. Even if he were, the product itself is not all that the search engine will yield, and the consumer knows this. Typing "Coke" into the search engine (again, limiting, for the sake of discussion, all of the results a "Coke" query might yield to sodas in direct competition 77 with Coke) will give him a list of URLs, many of which will likely take him to websites dealing with Coca-Cola. The search engine results are the aisle, and perhaps the proximate location within the aisle. The consumer might see something else of interest in the journey towards clicking through to Coke's site (which at that point would qualify as reaching for the product). Such is one of the serendipitous joys of using the search engine. Would the supermarket, the consumer, or the beverage industry at large be better off if the store clerk simply fetched the Coke for the consumer? If increased time shopping is good for the supermarket, if increased options are good
76. Id. 77. Is Dr. Pepper a direct competitor? Sunkist? Lipton Iced Tea? The courts should not be agonizing over these questions.
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for the consumer, and if better awareness and engagement with the world of soft drinks is good for the industry, then certainly not. Of course, it is even more important to note that several possibilities exist for why a person, even one acting as a consumer within a transactional setting, would ask for the Coke in the first place. For one, the consumer might have asked the store employee the location of the Coke because that was the easiest and most natural way for this particular shopper to communicate "I am looking for soda pop" to the employee. Alternatively, the consumer could be living in an area of the American South where "coke" is used as a generic term meant to signify soda pop. He may have been performing price comparisons on Coke (or indeed on all sodas) in local supermarkets. Perhaps he was not looking to buy Coca-Cola or any soda at all, but just wanted to look at the stacks of shiny red Coke cans next to the bright orange Crush cans next to the emerald green cans of Mountain Dew.78 In any event, the typing of the trademarked term into a search engine, even if it is assumed that the person is acting as a consumer, on the verge of a purchase, does not necessarily and automatically mean there is initial interest in the term entered. One of the minor drawbacks to having a powerful brand is that human beings, even when they act as consumers, use the trademark in ways that the trademark owner perhaps did not foresee or intend. These unforeseen or unintended uses are vital to the dialogue that occurs between producers and consumers. In fact, if there is a dialogue beyond offer and consumption, this is it. Finding trademark infringement in this scenario assumes a singular use of the trademark within the mental environment of the consumer. It also assumes a singular possibility of use by businesses as well. For example, Hertz Rental Cars might use the phrase "budget rental cars" as a metatag or keyword if they had a new sales initiative, one for people on a budget. This is use by a direct competitor of a trademarked term within the metatags of a website, and yet there is no likelihood of confusion. Budget Rental Cars might have a tagline, featured heavily on their southwest region's website (and therefore in the metatags) "Take a Budget Trip to the Alamo." Should Alamo be able to enjoin that use? Hertz, Avis and Alamo might all offer an "enterprise-wide rental plan" and thus use "enterprise" in their metatags. Could Enterprise Rental Cars stop them from offering such a plan on the web? If the law says that use of trademarked terms within metatags creates initial interest confusion, then the use of trademarked terms in the above examples would be enjoined. At best, each
78. As strange as this may sound, it is entirely plausible. In the late-night grocery clerk experience of this author, this hypothetical consumer would not be the first to enter a supermarket solely to
consume the sheer aesthetic delight of product packaging. It is apparently not uncommon for the modem consumer, or at least the lonely subspecies that shops at 3:00 AM, to enjoy a certain existential relief while witnessing the singing, gleaming, irrepressibly optimistic wall of shining American
products.
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business would have to consider the implications of using these terms on their sites a business cost. At worst, a court might have to consider whether these uses implicate trademark infringement, at considerable cost of time and effort. 4. The Hidden "Cost" of Expanded Choice Another argument for finding trademark infringement in the use of metatags is that the user's exposure to the competitor's online product forces the consideration of additional commercial communications before being able to reach the online service sought. 79 This additional search cost lies not in traditional source confusion but rather increased transaction costs (in time and effort). Perhaps there is some minimal merit to this argument, because users may have to sift through information they did not want or, worse, the additional material annoys or offends them. Yet nearly every search query, especially those that query trademarked terms, will yield many results. When using a search engine, the user must always sift through results, regardless of whether those results include direct competitors. Finally, it seems somewhat dubious to claim that consumers consider more choice as an increased transaction cost. Common sense suggests that consumers appreciate knowing about options that may be cheaper, faster, better, or otherwise different. Often, the increased transaction costs come in the form of banners or pop-ups that result from a query using a trademark. For example, if one enters a query for McDonald's into a search engine, one might get a pop-up for Wendy's. With respect to pop-ups, the increased transaction cost is the strongest. It is assumed that consumers prefer not to be assaulted with pop-ups, and the time it takes to cancel them, multiplied over millions, is considerable. The hassle and confusion of pop-ups no doubt lead many consumers to abandon a purchase, or even to avoid shopping online altogether. While pop-ups are a problem beyond the scope of this Comment, it should be noted that the marketplace has invented pop-up blockers to deal with this problem. This is yet another technological innovation (with greater potential applications) that may never have arisen had the law overregulated in the web's infancy.
III. INITIAL INTEREST CONFUSION: THE SALE OF TRADEMARKS AS
KEYWORDS BY SEARCH ENGINES
Search engines often allow advertisers to purchase the ability to have their advertisements appear on pages returned when users enter certain keywords. The trademark infringement issue arises when one party purchases the right from a search engine to tie the appearance
79. Again, this argument assumes the user's entering of the trademark into the search engine was motivated by a desire to purchase and/or research the product behind that trademark specifically.
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of its advertisements to key words that are the trademarks or trade names of another party. Where keyword placement of... advertising is being sold, the portals and search engines are taking advantage of the drawing power and goodwill of these famous marks. The question is whether this is a form of unfair freeactivity is fair competition or whether it 80 riding on the fame of well-known marks. Search engines offer trademarked terms for sale as keywords, allowing competitors to buy them as signals to trigger their own advertising when the search term is entered. Many have argued that this practice should lead to trademark infringement liability for the search engines. This Comment takes the position that this practice should be regarded as fair use and treated as a form of lawful comparative advertising. In short, keyword banner advertising facilitates consumer choice and promotes competition.
A. KEYWORD BANNER ADVERTISING: PLAYBOY V. NETSCAPE
The first case to decide whether keyword banner advertising resulted in trademark infringement was Playboy Enterprises,Inc. v. Netscape Communications Corp.81 In that case, Playboy Enterprises, Inc. (PEI) sought a preliminary injunction against the search engines Netscape and Excite for keying advertisements to the search terms "play82 boy" and "playmate," both registered trademarks of Playboy, Inc. After entering one of these search terms, users were presented with a list of websites whose coding or text contained the word(s) and a paid banner advertisement from a non-PEI purveyor of adult entertainment services.8 3 Even though the banner ads did not contain the words "playboy" or "playmate," Playboy argued that the search engine was engaging in trademark infringement, namely initial interest confusion. 84 First, the court noted that, to succeed on any trademark infringement claim, Playboy would have to show that defendants used the marks in commerce.8 5 Playboy argued that the search engine deriving 86 revenue from the sale of PEI's marks constituted a use in commerce. This argument seems logical enough, but the court noted that the use of the words "playboy" and "playmate" as search terms is not necessa80. McCarthy, supra note 17, at 25:70.1. 81. 55 F.Supp.2d 1070 (C.D. Cal. 1999). Id. at 1072. Id. 84. Id. at 1072-73. It is important to clarify here that Playboy did not contend that the search engines infringed its trademarks by generating a results list of any web site related to the terms "playboy" or "playmate." Rather, Playboy's main concern was with the sale of the trademarked terms to advertisers whose banner would appear over the search results, and the actual display of such a banner. 82. 83. 85. 86. Id. at 1073. Id.
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rily equivalent to the use of the trademarks Playboy and Playmate as search terms.8 7 As the majority stated: It is... undisputed that the words "playboy" and "playmate" are English words in their own right, and that there exist other trademarks on the words wholly unrelated to PEI. Thus, whether the user is looking for goods and services covered by PEI's trademarks or something altogether unrelated to PEI is anybody's guess. 88 The court's finding on the "use in commerce" issue addresses the concern that finding infringement here might ultimately result in one company essentially owning generic words in the English language, at least in the context of the search engine. The court therefore recognized the error in assuming a singular use of a trademarked term in the intention of the user. The court further explained that Playboy's efforts to curtail the use of the word would violate the First Amendment: Here, PEI is seeking to leverage its trademarks.., into a monopoly on the words "playboy" and "playmate." Indeed, by seeking a prohibition on all advertisements that appear in response to the search words "playboy" and "playmate," PEI would effectively monopolize the use of these words on the Internet. This violates the First Amendment rights of (a) Excite and Netscape [the search engines] (b) other trademark holders of "playboy" and "playmate"; as89well as (c) members of the public who conduct Internet searches. The court's decision inspires the reflection that a Netscape user might just as well use "playboy" as a search term in a query for information on J.M. Synge's famous stage play "A Playboy of the Western World." Young parents may use the search term "playmate" in researching toys made under the trademark "Playmates."' 90 An across-the-board injunction on the search engines selling trademarked terms would both frustrate inquiries relating to these and other products and subjects and prevent their serendipitous discovery through the search engine. Even if one assumes that the search engine sold the keyword for its function as a trademark, the purchaser bought the keyword because it was likely to be entered by those seeking adult entertainment, and the user entered the term to access adult entertainment, Playboy's argument for infringement is still weak. Even though it is likely that the firms who purchased the keywords "playboy" and "playmate" had done so because they were trademarks likely to be entered by those in search of adult entertainment, Playboy still had the burden of showing
87. Id. 88. Id. 89. Id. at 1084. 90. A cursory search on the U.S. Patent and Trademark Office's online database of live trademarks reveals 59 trademarks for the word "playmate" alone or in combination with other words. The word "playmate" alone is a registered trademark for a tennis ball throwing machine, grass seed, and a host of PEI products. The word "playmate," in combination with other words, is used in trademarks for beverage coolers, toys, and a children's magazine. See USPTO, at http://www.uspto.gov (last accessed Mar. 10, 2005).
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some form of consumer confusion. 91 Given the typical Internet user's familiarity with banner ads and the veritable hodgepodge of a typical search engine results page, it is especially unlikely that a consumer would click on a banner thinking it was sponsored by the trademark owner. The court ultimately ruled that Playboy failed to show that consumers were likely to be confused by the search engine's use of Playboy's mark, as Playboy did not offer evidence that consumers believed the banner ads had any affiliation with Playboy. 92 One might further note that the search results still included a number of links to the official Playboy site, thus recognizing that if the user were "reaching" for the Playboy product, he could still obtain it. Playboy appealed the district court's grant of summary judgment 93 for Netscape and Excite, and a decision was filed in January of 2004. The Ninth Circuit Court of Appeals found that a fact issue did exist as to whether the search engines' practice of selling the terms "playboy" and "playmate" created likelihood of initial interest confusion. 94 The lower court's decision has been remanded for a more thorough consideration of those issues. One of the alternative defenses offered by the defendants in the Playboy case involved the fair use doctrine. 95 The fair use doctrine, explored below in a sample of cases involving the Google search engine, constitutes yet another reason why trademark owners should not be allowed to prohibit search engines from selling trademarked terms as keywords. In lawsuits against it, Google has sought declaratory judgment as to the lawfulness of its keyword ad system, both to clarify the law in this area and to halt a deluge of potential litigation against them. It is likely that both the Geico and American Blind cases, discussed infra, will provide some direction.
B. GEICO V. GOOGLE
The insurance company Geico sued Google in Virginia to enjoin the search engine's sale of its trademark ("Geico") to competitors as a keyword. A decision from the court in Virginia was issued in December of 2004, where the judge ruled that Google's policy of selling links and advertising on its search results page, triggered by the user entering "geico" into the search engine does, not violate federal trademark laws. 96 Geico argued that the display of rival ads next to search results confuses consumers and that Google should not be permitted to sell
91. Kurt M. Saunders, Confusion Is the Key: A Trademark Law Analysis of Keyword Banner Advertising, 71 Fordham L. Rev. 543 (2002). 92. Playboy, 55 F.Supp.2d at 1074. 93. Playboy Enterprises, Inc. v. Netscape Communications Corp., 354 F.3d 1020 (9th Cir. 2004). 94. Id. at 1022. 95. Playboy, 55 F.Supp.2d at 1070. 96. Brendan J. O'Rourke, FederalJudge Issues Trademark Ruling on Keyword-TriggeredAdvertising, 2/05 Metro. Corp. Couns. 10, (col. 1). As of this writing, this decision has not yet been published.
1NTELL. PROP. L. BULL.
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ads to competitors that appear when one enters "geico" into the search engine1 7 The judge in the case ruled that there is no evidence that this activity alone causes confusion. 98 In short, Geico's expert failed to show confusion from advertisements that did not feature the term "Geico." 99 This was an important victory for Google, but they did not win on all counts in the case. The court found that those sponsored links that contain "Geico" within the ad are likely to confuse, and denied Google's motion to 00 dismiss the infringement claims related to such ads. 1 The case also did not resolve whether Google may be found contributorily liable for Lanham Act violations arising from its keyword advertising practices. Separate from the Geico case, Google is currently defending against a similar case brought by American Blind and Wallpaper Factory in the Northern District of California.101 The case could ultimately turn on whether the court finds Google's use of trademarked terms as fair use.
C. AMERICAN BLIND V. GOOGLE
American Blind and Wallpaper Factory, Inc., a manufacturer of wallpapers, blinds and other home furnishings, sent a letter to Google in July of 2000, stating that Google's sale of ad space based on over 30 terms trademarked by American Blind constituted trademark infringement. This list included terms such as the trademarked "American Blind and Wallpaper Factory," but it also included terms like "American wallpaper discount."102 Google refused to take any action on the generic terms, arguing that such terms were descriptive in nature and therefore should be available for purchase as keywords by any third party, including American Blind's competition. 0 3 American Blind did not agree, and sued in the Northern District of California. The action is still pending. 1 4
D. FAIR USE
Under the doctrine of fair use, competitors may use competitors' trademarks when comparing products.10 5 The search engine's use of trademarked terms enables this form of comparative advertising, and
97. Id. 98. Id. 99. Id. 100. Id. 101. See Douglas M. Isenberg, ed., Roundtable Discussion: Pop-up Ads and the Law, GigaLaw. corn, at http://www.gigalaw.com/articles/2004-all/ip-2004-03-p3.html (last accessed Mar. 10, 2005). 102. Alexandra Dell & Heather Smith, Google Gets Hit with Trademark Infringement Suit, 4 IP Law and Business 21 (2004). 103. Id. 104. Dee McAree, Google Scores a Win in Va., but Round 2 Is in California, The Recorder, S.F., February 8, 2005, at 2. 105. Smith v. Chanel Inc., 402 F.2d 562, 563 (9th Cit. 1968) (allowing trademarks to be used in comparative advertising).
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hence should fall under the protection of the fair use doctrine. Keyword banner ads and keyword placements triggered by trademarks as search terms should be considered a form of comparative advertising when they allow a firm to offer an alternative product or service in competition with that of a competitor. 1 6 Purchasing a keyword constitutes a minimal use of the trademarked term, and the possibility of actual consumer confusion is slight, especially when weighed against the benefit of enhancing consumer choice by providing information about additional options. Furthermore, this kind of search engine advertising allows the newer and the smaller company to attract some measure of attention otherwise unattainable. This competition can only result in more choice and ultimately better products for the consumer. Trademark law should not be used as blinders to restrict the very thing consumers seek when they use the search engine: information. Of course, there are limits to this fair use. A clear case of confusion would exist if the competition's banner ad or hyperlink actually used the trademark of the trademark owner. For instance, if a consumer in search of auto insurance typed "geico" into the search engine and a banner appeared saying "Click here for Geico," and it resolved to a site for Progressive Insurance, there is a clear case of initial interest confusion. Likewise, the same conclusion would follow if a consumer typed "nike" into a search engine and a banner placed by Adidas that reads "Just do it" appeared. The Geico case provides an indication that this practice violates the Lanham Act. On a practical level, however, this problem is already avoided by Google's policy, stated on their website: When we receive a complaint from a trademark owner, we will only investigate whether the advertisements at issue are using terms corresponding to the trademarked term in the advertisement's content. If they are, we will require the advertiser to remove the trademarked term from the content of the ad and prevent the advertiser from using the trademarked term in ad con10 7 tent in the future.
IV.
THE
TRADEMARK AND ADVERTISING
The ascendancy of the trademark as a powerful economic and cultural force gained significant momentum the 1950s and 1960s, due
to many factors including the nearly spontaneous ubiquity of television and television advertising. No doubt the amount and impact of television advertising has only increased since those days, but the symbiotic relationship between television and advertising has begun
106. Saunders, supra note 91. 107. See generally Google.com, Trademark Complaint Procedure, at http://www.google.com/tmcomplaint.html (last accessed Mar. 10, 2005). Yahoo! maintains a similar policy.
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to break down somewhat with the advent of new technologies and changing attitudes from consumers about advertising.108 It is possible that the Internet will replace the television as the most important channel with which to communicate with consumers. Therefore, issues of trademark infringement specific to the web are of utmost import. Fifty years ago, three networks broadcast monolithic signals across the entire nation, and viewing was scheduled accordingly. Today's consumer has more control of his consumption of broadcast media and, therefore, advertising. The popularization of technologies such as TiVo allows the elimination of television ads altogether. Furthermore, consumers have developed different and perhaps more critical attitudes towards the alleged power of corporate brands, their presence, and the uses for the brands themselves.10 9 In response to this changing atmosphere, trademark law must change and evolve just as do the the people it is meant to protect. The modern consumer's relationship to trademarks has evolved perhaps as the result of the power and phenomenal success of trademarks and branding in general. Now that trademarks inhabit our mental environment, however, the law should not assume that a consumer's use of a term that happens to be trademarked necessarily implicates the protections of trademark law. In a time of increasing scope of intellectual property rights protection, consumers must assert their right to use the tools of modern marketing (namely, trademarks) in a way that allows them more flexibility, not less. At the same time, those who have developed powerful trademarks should not be allowed to use trademark law to foreclose online competition. The implication for trademark use within search engine marketing is clear. Simply because one types a trademarked term into a search engine, it must not be assumed that she seeks to purchase and/ or consume that particular product. And simply because a search engine sells a trademarked term as a keyword, it must not be assumed that consumer confusion will result.
CONCLUSION
A real-life hypothetical illustrates the issues and conclusions set forth above. A woman's fianc6e tells her he wants a motorcycle. The
108. There is no doubt that advertisers (or, more precisely, ad agencies) cast a nostalgic eye to the 1950s, 60s and 70s, when the novel medium of television helped fund the growth of the ad industry. Today, the capability to bypass commercials, combined with the growing importance of cable TV, threatens to diminish (at the least) the quantity of broadcast television advertising spots. Interestingly, the past ten years have also witnessed a number of hugely successful consumer-oriented brands that largely eschew television advertising. Note, for instance, the dearth of television advertising for Starbucks cafes, contrasted with Starbucks' market value of $21 billion. Apropos to this Comment, how many ads for Google (market value: $5 billion) have you seen lately? 109. The popularity of books such as Naomi Klien's "No Logo" and the increased incidence of coopting advertising to deliver anti-corporate messages stand as two contemporary examples of this changing relationship. For examples of co-opted or "spoofed" advertising, visit the website of Adbusters. Adbusters, at http://www.adbusters.org (last accessed Mar. 10, 2005).
20051
next day the woman sees a Honda "Valkyrie" motorcycle on the street. She enters this word into Google. Perhaps she is simply using that brand name as a stand-in for the category "motorcycles." The search engine returns sites dedicated to female warriors of Norse myth and the famous Wagner opera. Within the results, or in the sponsored links area, there appear links to Honda's, Yamaha's and Harley Davidson's web pages. Should Honda be able to enjoin all of these results because it owns a trademark in the word "valkyrie"? Should it be able to enjoin the Yamaha or Harley links because they are competitors? For the reasons set forth above, Honda should not be able to do this. The practical point is that the woman is better off as a consumer seeing all the options, including the ones involving Norse mythology, lest she buy her future husband a motorcycle named after a girl. Her fiancee, on the other hand, needs to buy the wedding ring. He types "Tiffany's" into a search engine. Perhaps he is looking to start his shopping experience at the higher end, to elevate his taste. He may simply know that Tiffany's is a place where one buys wedding rings - he realizes there are other places, he just doesn't know any names. In the back of his mind, however, he wants to buy the engagement ring at Service Merchandise, and he might appreciate a link to that store. In any case, the meaning of his use of the trademarked term is defined by him, not trademark law, because it inhabits his mental environment in a specific way. For all we know, he may just want to look at the pretty blue color of the Tiffany's box.
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Rewinding Sony: Can the Supreme Court and Big Media Grok P2P?
By
DAN PONTES*
Depending on who is asked, the emergence of file-sharing software in the late 1990s was either the greatest thing since sliced bread or a doomsday scenario for rights holders under copyright law. For users, the ability to easily locate and download music at the touch of a button preempted the need for that cumbersome visit to the record store, and was far easier on the wallet. For record companies, the seemingly total loss of control over the distribution of their copyrighted material and the concomitant loss of profits immediately triggered a sense of panic. In any event, it is clear by now that the free media craze is a big phenomenon. It is simultaneously the bogeyman in the copyright owners' closet, and something which end users have grown to accept and even expect. It is also likely here to stay. Some estimates peg the total number of songs downloaded by Americans at over 4 billion in 2003 alone.' Courts have wrestled with some of the copyright implications of this new technology with varying success, particularly as it relates to contributory liability on the part of the peer-to-peer ("P2P") software companies. With the case of MGM Studios, Inc. v. Grokster Ltd.,2 recently granted certiorari by the United States Supreme Court, the topic is certainly ripe for reevaluation. This is obviously an area in which the law needs to evolve, but it is not yet clear precisely how this should happen. It is similarly unclear how rights holders should respond, both in the interim and after the issues become more settled. This Comment examines contributory and vicarious liability for copyright infringement, including the staple article of commerce defense and its questionable usefulness in the P2P age. Part I discusses the rule as laid down in Sony Corp. v. Universal City Studios,3 as well as the current circuit court split on the issue of the staple article of commerce doctrine as it specifically relates to P2P software. Part II argues that it is well past time for a reevaluation of the Sony doctrine, and looks into possible judicially-created alternatives which seem to make
* Class of 2005. B.A., Bates College (1997).
1. See IT Innovations and Concepts, Digital Piracy - Definitive P2P Piracy Figures For Year 2003, at http://www.itic.caIDIC/News/200408/111P2Ppiracy figures2003.html (last accessed Mar. 10, 2005). 2. 380 F.3d 1154 (9th Cir. 2004).
3. 464 U.S. 417 (1984).
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more sense given current realities. Finally, part III explores options that copyright owners should and should not pursue in order to regain some semblance of control over their copyrighted material without alienating their consumer base. I.
THE SONY DECISION AND ITS CONSEQUENCES FOR
P2P
In Sony Corp. of America v. Universal City,4 the Supreme Court tackled the question of secondary liability for copyright infringement in light of the home entertainment revolution brought on by the video cassette recorder. In that case, the Court ruled that, so long as the device or article of commerce in question was "merely capable of substantial non-infringing uses,"5 the manufacturer could not be held contributorily liable for infringement by end-users. This "staple article of commerce" doctrine was borrowed from patent law, justified on policy reasons equally pertinent to copyright law holding that manufacturers of such staple articles of commerce contributorily liable would have a chilling effect on future innovations and products which are useful to the public in noninfringing ways. 6 Of particular importance to Justice Stevens' reasoning was the fact that the media rights holders at the time of the decision would not object to home users simply "timeshifting" broadcasts for viewing at their leisure, which at the time was the primary use of home video recorders.7 Even where unauthorized recording of television programming was occurring, such copying was deemed a legitimate fair use and a defense to infringement.8 Additionally, Universal Studios and the other media rights holders were unable to show more than minimal harm to their rights in copyright would result from time-shifting use.9 With the advent of "pure" P2P file sharing software, whch does not require software distributors to maintain central file lists where users connect to a centralized system, the staple article of commerce doctrine has been read very differently by various courts, resulting in a circuit split.10 In Grokster" the Ninth Circuit upheld the staple article of commerce doctrine as it applied to P2P file sharing software distributors. 12 Relying in part on the ruling in A&M Records v. Napster, Inc.,13 where the court reaffirmed the Sony standard for the level of knowledge required for contributory infringement, the P2P
4. Id. 5. Id- at 442. 6, See id. at 439-41. 7. See id. at 443-50. 8. Id. at 447. 9. Id. at 456. 10. Compare Grokster, 380 F.3d 1154 (upholding the staple article of commerce doctrine as it applies to P2P file sharing software distributors) with In re Aimster Copyright Litig., 334 F.3d 643 (7th Cir. 2003) (severely limiting the applicaton of the staple article of commerce doctrine in this context). 11. Grokster, 380 F.3d 1154, 12. Id. 13. 239 F.3d 1004 (9th Cir. 2001).
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software in Grokster was found to have substantial noninfringing uses.' 4 Thus the distributors of the software could not be held liable for merely constructive knowledge that their software was being used to infringe on copyrights.15 The plaintiff would have to show that the defendant had reasonable knowledge of specific infringement in order to be held contributorily liable. 16 The court reasoned that this higher standard of reasonable knowledge for contributory liability had not been met because Grokster's system was decentralized.' 7 This means that Grokster's system does not maintain a centralized list of files, and thus, unlike Napster, does not exert any control over what is being traded. 18 Unlike the ruling in Sony, where the discussion of secondary liability was essentially limited to contributory infringement alone, the Grokster and Napster courts separated the question of secondary liability into two parts, vicarious liability and contributory infringement. 19 After ruling that Grokster was not contributorily liable because Grokster did not have the right or ability to supervise users on their network,2 0 the court also found them not vicariously liable for infringement. The Seventh Circuit in In re Aimster Copyright Litigation2' interpreted the Sony doctrine very differently. In that case, the court held that the copyright owners were likely to prevail on their claim of contributory infringement, even in light of the staple article of commerce 2 Aimster's showing that its software defense to infringement.? was indeed merely capable of noninfringing uses was not enough for them to avoid liability where they could not provide any evidence of actual noninfringing uses.23 The court said that, if the infringing uses were substantial in nature, and if a P2P defendant were able to show some noninfringing use of the product, the burden was on the P2P provider to show that it would have been disproportionately costly for them to 24 wholly eliminate or substantially reduce the noninfringing uses. As to the constructive knowledge requirement, Aimster was found contributorily liable for infringement regardless of substantial noninfringing uses,- unlike the court in Sony which found that constructive knowledge alone was not sufficient to impose secondary lia14, Grokster, 380 F.3d at 1160. 15. Id. at 1161. 16. Id. at 1162 (applying A&M Records, Inc. v. Napster, Inc., 239 F. 3d 1004 (9th Cir. 2001) (hereinafter "Napster I"), A&M Records, Inc. v. Napster, Inc., 284 F. 3d 1091 (9th Cir. 2001), and Sony, 464 U.S. 417). 17. Id. at 1163. 18. Id. 19. See Napster 1, 239 F.3d at 1022 (discussing why the Sony court did not visit the vicarious liability issue). 20. Grokster,380 F.3d at 1164. The other two prongs of the vicarious liability test, direct infringement and financial benefit, were not contested. 21. Aimster, 334 F.3d 643. 22. Id. at 653. 23. Id. 24. Id. 25. Id. at 651.
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bility where there were substantial non-infringing uses of the Betamax VTR.26 "Willful blindness," a well settled principle of copyright in27 fringement law, was applied and held to be equal to knowledge. Even Aimster's willful and purposeful use of an encryption feature, intended to prevent Aimster from learning what particular files were being traded on their network, did not help them escape contributory infringement liability.28 Because Sony was binding precedent and treated vicarious and contributory infringement interchangeably, the court in Aimster declined to visit the issue of vicarious liability after finding contributory liability. 29 They did leave open the possibility, however, that where a P2P network could eliminate an encryptionmasking feature in addition to monitoring the uses of its system, a 30 finding of vicarious liability could occur.
II.
THE STAPLE ARTICLE OF COMMERCE DOCTRINE AND
CONTRIBUTORY LIABILITY FOR COPYRIGHT INFRINGEMENT
Given the current realities of P2P technology, it seems apparent that the usefulness of the Sony doctrine is wearing thin. When that case was decided, most of the copyright owners involved did not object to the use of VTRs for time-shifting, which was seen as the primary copying use.31 Conversely, in the P2P age, copyright owners are much more concerned about losing control of their copyrighted material. For example, the certiorari petition to the Supreme Court in the Grokster case contains dozens of copyright owners who have stated actual harms, not just the potential harms hinted at by the copyright owners in Sony.3 2 The sheer volume of copying in P2P networks is a greater problem for copying today as well. In Sony, the concern was with users copying television programs for use at home, 33 but due to the borderless nature of the internet, the P2P networks have a global reach. Once a file is uploaded to a P2P network, the damage to the copyright owner is arguably greater due to the sheer volume of users who can freely obtain the media. P2P file sharing can result in thousands of copies being spread to thousands of users, almost instantaneously, with no loss in quality, 34 something that the VTRs in the
26. 464 U.S. at 439-42. 27. Aimster, 334 F.3d at 650. 28. Id. at 653. 29. Id. at 654-55. 30. Id. 31. Sony, 464 U.S. at 423. 32. MGM v. Grokster, Petition for a Writ of Certiorari, at http://www.groklaw.net/pdf/GroksterPetition.pdf (last accessed Mar. 10, 2005). 33. Sony, 464 U.S. at 423. 34. The online encyclopedia Wikipedia has an excellent explanation of how P2P file sharing systems operate. See Peer-to-peer, at http://en.wikipedia.org/wiki/Peer-to-peer (last accessed Mar. 10,
2005). HeinOnline -- 9 Intell. Prop. L. Bull. 162 2004-2005
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163
Sony case simply could not do. 35 Each right in the copyright bundle, particularly the distribution right, is threatened more by P2P networks than it was by the VTR. On December 10, 2004, the United States Supreme Court agreed to hear the Grokster appeal. 36 A recasting of the Sony doctrine should lead to reasoning more in line with the Aimster decision rather than that of Grokster, both as it relates to contributory liability and the defense to infringement. To do otherwise is to ignore the unprecedented impact of P2P on copyrights as well as the very reason why most, if not all, of these P2P companies exist in the first place: to generate ad revenues by installing spyware or serving advertisements to 37 users who are seeking to download popular copyrighted media.
A. RETHINKING THE CONTRIBUTORY INFRINGEMENT STANDARD
For a claim of contributory infringement to succeed, the alleged infringer must have had constructive knowledge of the infringement, and must have materially contributed to the infringement. 38 Taken together, the rules from Sony and Grokster as to constructive knowledge and material contribution cannot adequately cope with the flood of illegal file sharing taking place on the P2P networks. The Sony holding that constructive knowledge cannot be imputed to the manufacturer when the product has substantial noninfringing uses should not apply to P2P cases. 39 It seems disingenuous in the least to say that a company which creates a P2P network specifically tailored for trading music and other media files cannot be imputed with the knowledge that the product will be used for illegal file sharing. In fact, illegal file sharing is in some respects the very reason this software is created. Imagine how little ad revenue a P2P software company would garner if their product could not be used to trade the most popular copyrighted music. Thus, the constructive knowledge requirement does not go far enough in holding that, when there are merely substantial noninfringing uses, the burden is on the copyright owner to show "reasonable knowledge of specific infringement to find liabil' 4 For example, for Grokster to be reasonably ity." aware that specific infringement was taking place, they would simply need to log onto
35. Video enthusiast website Pete's Video has a good explanation of the generation loss associated with VTR-to-VTR copying. See Pete's Video, Generation Loss, LANC and Tlmecode, at http:f/ www.petesvideo.com/vidgenloss.htm (last accessed Mar. 10, 2005). 36. MGM Studios, Inc. v. Grokster, Ltd., 125 S.Ct. 686 (U.S., 2004). 37. The End User License Agreement for the popular KaZaa P2P client disclaims that no less than 6 different spyware or advertisement delivery programs are installed on users' machines concurrently at the time the user installs the client. These programs then reside on users' machines and serve them advertisements. See KaZaa, End User License Agreement, at http:i/www.kazaa.comlus/terms.htm (last accessed Mar. 10, 2005). 38. Napster 1, 239 F.3d at 1019. The first element for contributory liability, direct infringement by users (as it relates to P2P networks) has not yet been an issue, since it has been uncontested in all of the pertinent cases. Id. 39. Sony, 464 U.S. at 442. 40. Grokster, 380 F.3d at 1161.
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their own network and enter a search for any popular copyrighted song. It is immaterial that they did not keep a central index of what material was being traded or that they should have received notice of specific infringement in order to supply the requisite knowledge for infringement. The more sensible approach to the knowledge issue is the one taken by the court in Aimster.41 When a P2P company willfully blinds itself to the file trading occurring on its system through the use of encryption technology, which obfuscates the exact content being traded, the knowledge requirement can be satisfied. 42 In other words "it may be enough that the defendant should have known of the direct infringement" 43 It is unfair to allow companies to escape the knowledge requirement simply because they design around the Napster I problem by omitting a centralized file list or designing measures to hide from themselves what is being traded on their system, as was the
case in Aimster.44
The material contribution to infringement rule from Napster I was later applied to Grokster. It states that, in order to be found contributorily liable, the software provider in question must provide services to users which enable them to take part in infringing acts, followed by a failure to stop specific users from infringing once that infringement is known. 45 Napster's integrated service, including the search function and centralized list of files, was held to be akin to "sites and facilities" needed for infringement. 46 Without such services, "Napster users could not find and download the music they want with
the ease of which [Napster] boast[ed]."- 7 Aimster's services were in
many ways similar to those provided by Napster, largely because Aimster's own servers searched the computers of other Aimster users when the initial user searched for a song,.48 The court there found a high enough likelihood that the plaintiffs would succeed at trial to grant a preliminary injunction stopping Aimster in its tracks. 49 This rule seems to make good sense, but one must ask why the court in Grokster declined to find the defendant a material contributor. The Grokster court seemed mainly concerned with the technical design aspect of the Grokster system. 50 A decentralized system such as Grokster's removed them from the realm of true access providers, such as Aimster and Napster, primarily because they did not provide file stor41. 42. 43. 44. 45. 46. 47. 48. 49. 50. See Aimster, 334 F. 3d at 650. Id. Id. (emphasis added). Id. Napster 1, 239 F.3d at 1022. Id. Id. at 919-20. Aimster, 334 F.3d at 651. Id. at 652-53. Grokster, 380 F.3d at 1163.
age and index maintenance for their users. 51 Grokster could effectively shut down operations, yet users could continue to utilize the program to trade files. 52 Great weight was given to the fact that it was the users themselves under such a pure P2P scheme that provided the 3 access, storage, and file list information5 Several commentators have found this reasoning lacking. One argument is that there are simple measures that P2P software proprietors could take, such as filtering mechanisms, which could allow them to weed out copyright infringement on their networks.5 4 By refusing to explore potential remedies like this, some of which could easily be implemented, P2P companies are materially contributing to the infringement on their networks even though they are decentralized and supposedly without authority to control users.5 5 This reasoning is analogous to the Aimster constructive knowledge requirement. 56 If a company willfully keeps out features of its product, which could easily be implemented to track and curb piracy, it seems only fair to say they are in some way contributing to the infringement problem. Another argument comes from the Sony case, in which the court noted that an ongoing relationship between the direct infringer and the contributory infringer provided the "lynchpin of control and access required for liability."'57 In Sony, once the VTRs were sold to consumers, that relationship arguably ended, but this might not be the case with P2P networks. Grokster and other P2P providers would obviously argue that it is, but the fact that they can continue to gain ad revenue by implanting adware on users' computers, or by serving popup ads within the client itself, seems to create an ongoing relationship in which both parties benefit.58 This implies that the relationship between direct infringer and contributory infringer in the case of P2P networks does not end when the user downloads the P2P client, which gives the P2P networks a higher degree of control and access.
B. RETHINKING THE VICARIOUS LIABILITY STANDARD
A related issue to that of contributory liability is vicarious hability. When a claim of vicarious liability arises, the key question is whether or not the alleged vicarious infringer has the right and ability to supervise direct infringers. 59 In Napster I, such a right and ability
51. Id. 52. Id. 53. Id. 54. Robert A. Gilmore, Case Comment, Peer-to-Peer: Copyright Jurisprudence in the New FileSharing World, The Post Grokster Landscape of Indirect Copyright Infringement and the DigitalMillennium Copyright Act, 5 Fla. Coastal L.J. 85, 112 (2004). 55. Id. 56. Aimster, 334 F.3d at 650. 57. Elizabeth Miles, Note, In re Aimster & MGM, Inc. v. Grokster, Ltd.: Peer-to-Peerand the Sony Doctrine, 19 Berkelcy Tech. L.J. 21, 48 (2004). 58. id. 59. The other two elements of vicarious liability were undisputed. Grokster, 380 F.3d at 1164.
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was found where Napster was able to monitor their system for infringement and block specific users from using that system. 60 Napster was seen to have turned a blind eye to specific acts of infringement, even though they had the ability to discover those acts and ban the actors. 61 In Grokster, however, the court found that the defendant did not have the ability to block access to individual users because they only used Grokster to connect to other users, thus there was no "communication between defendants and users [which provided] a point of access for filtering or searching for infringing files. '' 62 In other words, the infringing material and index information never passed through 63 Grokster's computers. Although the Aimster court did not reach the issue of vicarious liability, 64 the reasoning behind the willful blindness test could easily be applied to the right and ability to police a pure decentralized P2P system, such as the Grokster system. Simply because a P2P proprietor refuses to implement even a semblance of control over their users does not mean they should not be held vicariously liable for infringement. As discussed above, 65 if a filtering system which could be easily implemented was deliberately left out for no other purpose than to evade liability, perhaps this alone should constitute vicarious liability. The Grokster court heard the argument from the defendants that turning a blind eye to detectable acts of infringement for the sake of profit gives rise to liability,66 but dismissed it due to the fact that they found Grokster to have no right or ability to control and supervise in the first place.67 If the Aimster reasoning behind the willful blindness test were applied in such a way that it could create a right or ability to supervise, then perhaps this argument would have held water. If the willful blindness test is not applied as it was in Aimster, in light of the effect of Grokster on the law, P2P companies could purposefully design systems without monitoring features in order to avoid liability.
C. THE STAPLE ARTICLE OF COMMERCE DOCTRINE AND
P2P
Finally, one must address the main defense raised in these cases, the staple article of commerce doctrine, and its application to contributory copyright infringement. Essentially, if a product is merely capable of substantial noninfringing uses, the distributor or manufacturer of that product can evade contributory liability for acts of direct infringement using that product. 68 When the Sony court borrowed this
60. Napster 1, 239 F.3d at 1023. 61. See id. at 1023-24. 62. Grokster, 380 F.3d at 1165. 63. Id. 64. Airnster, 334 F.3d at 653. 65. See discussion supra Part H.A. 66. Grokster, 380 F.3d at 1166. 67. Id. 68. Sony, 464 U.S. 441-42.
2005] PEER-TO-PEER APPLICATIONS AND COPYRIGHT LAW 167 doctrine from patent law, transplanting it to copyright, it seemed like a good fit at the time. 69 With the advent of P2P and its lossless copying and widespread distribution capabilities, however, it is overdue for reconsideration, at least in the context of file sharing software. The court in Grokster found favor with the Sony doctrine on this point, holding that Grokster's software was indeed capable of substantial noninfringing uses based on the fact that numerous people permitted their work to be freely traded on the network. 70 This reasoning seems to give short shrift to the fact that the overwhelming majority of media that is traded on these networks is actually copyrighted, and that users who download from the P2P networks are taking part in direct infringement. 71 Additionally, the doctrine as applied in Grokster seems to reward P2P companies if their product is merely capable of noninfringing use, with no weight given to whether the software is actually being used in a noninfringing way. Again, when the Supreme Court hears the Grokster appeal, they should do so with an eye towards Aimster, which seems to better reflect the reality of today's P2P software revolution. 72 Although Aimster made no showing of noninfringing use of their system, the court stated in dicta: Even when there are noninfringing uses of an Internet file sharing service ... if the infringing uses are substantial, then to avoid liability as a contributory infringer the provider of the service must show that it would have been disproportionately costly for him 73 to eliminate or at least reduce substantially the infringing uses. This reasoning has the effect of shifting the burden to the provider of the service to show that anti-piracy measures would have been unduly burdensome. This is preferable because it would effectively limit the application of contributory liability to P2P proprietors who created their software specifically for users to directly infringe on copyrights. If a P2P company is truly interested in creating something which is used for primarily noninfringing uses, then they should have nothing to fear. This reasoning also seems to confront the reality that file tracking software, which could be added to P2P software quite easily, is often left out to avoid liability under the current law.74 In using the Aimster reasoning on the staple article of commerce doc69. id. 70. See Grokster, 380 F.3d at 1161-62. 71. BigChampagne, an online media measurement company which tracks activity on the major P2P networks, releases a weekly list of the "TopSwaps" (i.e. most frequently downloaded music). The list for January 31 through February 7, 2005, for instance, is comprised solely of newly-released (and copyrighted) music from major label artists including Mario, Eminem and Jennifer Lopez. See BigChampagne, TopSwaps, at http://www.bigchampagne.com/radio.html (last accessed Mar. 10, 2005). 72. Aimster, 334 F. 3d at 653. 73. Id. 74. See Napster L 239 F.3d at 1021. Grokster, Aimster and the other decentralized P2P systems have until now been able to avoid liability by simply leaving out features which could tell them what is being traded on their networks. The fact that Napster had a centralized file tracking feature housed on their system amounted to knowledge of infringement.
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trine, the law would more accurately reflect the true purposes of this software.
11. WHAT SHOULD COPYRIGHT OWNERS
Do?
The current reality of P2P file sharing mandates a recalibration of the Sony doctrine in a direction favoring copyright owners, at least as it relates to P2P software primarily used for illegal file sharing. Distributors of such software, who invariably know the purposes for which it will be used, should not escape culpability simply by burying their head in the sand instead of monitoring their networks, or by adding or omitting technological measures which preclude such monitoring. If the Supreme Court agrees, and the rewind button is pressed on the Sony doctrine, how should copyright owners respond? Should the staple article of commerce doctrine be strengthened to favor copyright holders? If legislation is passed lowering the bar for contributory infringement against P2P file sharing system distributors, it would be tempting for copyright owners to fall into the trap of believing their problem to be solved. Armed with a favorable Supreme Court ruling or strong new legislation from Congress, one can easily imagine a new and successful wave of litigation by rights holders against P2P software companies. Yet this is highly unlikely to stop illegal file sharing, and in many ways could ultimately be counterproductive to the overall business goals of rights holders. The genie is now out of the bottle, and getting him back in, using today's methods, will prove exceedingly difficult. Any successful approach to stemming the losses resulting from pirated media must start with a reevaluation of long held beliefs about media distribution control and a fresh look at enforcement strategies. Efforts by copyright owners aimed at curbing piracy up to this point have fallen into two distinct camps: retroactive and proactive. Retroactive methods can be thought of as those in which copyright holders loudly proclaim their copyright rights and use every legal and judicial tool at their disposal in a strong-armed attempt to protect them. These methods almost always look backward; they tend to occur after infringement has taken place, or after new file sharing technology is already widely available. Examples include lawsuits against the more egregious end users of P2P technology, lawsuits against the P2P companies based on contributory or vicarious infringement principles, and vocal lobbying in Congress following each new file sharing advance. Using such retroactive methods, the copyright holders make no attempt to hide who they are, nor the fact that they are willing to go to great lengths to protect their intellectual property. However, there has also been a recent upsurge in more proactive methods used by copyright holders to combat piracy. Proactive enforcement measures are preventative rather than reactive, and are put
in place before infringement occurs. Additionally, these behind-thescenes measures are largely hidden from consumers before the infringing act occurs. A good example is the recent emergence of digital media asset protection services, in which copyright holders essentially use the distributive nature of P2P networks to protect their assets by seeding those networks with fake files to head off would-be infringers.75 Another example, which has been in use for some time, is the media or application of encryption technology that is attached to the 76 occurs. it before copying illegal prevent to asset software An effective strategy to combat the piracy problem should therefore involve three elements. First, the use of retroactive strong-armed enforcement measures should be reexamined. Such measures should be used more selectively, and should not be viewed by copyright holders as the sole method for preventing piracy. Second, copyright holders must work to adopt more effective proactive enforcement measures, which do not carry the public relations stigma of the retroactive methods, and in most cases are more effective at stopping piracy before it occurs. Finally, and perhaps most importantly, copyright holders in the music, film and software industries need to find ways to embrace file sharing and P2P in general, to see it as a business opportunity rather than a danger.
A. LESS RETROACTIVE MEASURES
Copyright owners have for some time been using the courts in an attempt to retroactively track down end users who have already traded in pirated media. The most high profile attempt is that of the Recording Industry of America (RIAA), a trade group which represents the interests of all the major players in the music publishing industry, 77 which in September 2003 began to file lawsuits against end users on the P2P networks claiming copyright infringement. 78 To date, over 6,200 individual lawsuits have been filed, namely against the more egregious file swappers on the most popular P2P networks.7 9 There are a number of problems with this approach. This effort is seen by most consumers in the online file sharing community as heavy-handed. There are now dozens of websites calling for a boycott
75. One such company is Overpeer. See Overpeer, at http://www.overpeer.comI (last accessed Mar. 10, 2004). 76. Again, the online encyclopedia Wikipedia has a helpful explanation of copy protection and how it has been applied to media assets. See Copy Protection, at http://en.wikipedia.org/wiki/Copyprotection (last accessed Mar. 10, 2005). 77. See RIAA.com, About Us, http:/fwww.riaa.com/about/default.asp (last accessed Mar. 10, 2005). 78. See News.com, RIAA Sues 261 File Swappers, at http://news.com.comRIAAues+261ile wappers/2100-1023_3-5072564.html (last accessed Mar. 10, 2005). 79. See Berni Dwan, RIAA Files 750 New File-TradingLawsuits In The US & CD Sales Up 10%, Digital-Lifestyles.info, Nov. 1, 2004, at http://digital-lifestyles.infoldisplay-page.asp?section=business& id=1727 (last accessed Mar. 10, 2005).
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of the major record labels affiliated with the RIAA.80 A story which garnered international news coverage was that of Sarah Ward, a 66 year-old grandmother who had never used P2P software to swap music, yet was sued by the RIAA for over 2000 acts of alleged infringement to the tune of $300 million dollars. 81 Though that suit was later dropped by the RIAA, the damage had been done from a public relations standpoint. Such bullying tactics are not likely to help out the cause of stopping piracy, especially when one considers that the younger, more tech savvy and highly-coveted consumers have become so accustomed to being able to download music for free that they do not see it as objectionable from a moral standpoint. An August 2003 Gallup poll showed that 83% of teens aged 13-17 found that downloading free music was "morally acceptable." 8 2 When the primary consumers of a product feel that there is nothing wrong with taking the product for free, it is hard to see how targeting those consumers with lawsuits is going to change their mentality. If anything, it only serves to escalate the tension between the consumers and producers of media. The RIAA's view is that, by making an example of some of the more active users, the rest of the file sharing community will begin to question their actions before they download music. 8 3 In support of their contention, soon after their legal efforts started, there was a demonstrable drop in traffic on two of the biggest P2P networks. 84 However, this drop in usage rates was short lived, and the growth of file sharing on the P2P networks has continued unabated as 85 users switch to more enforcement-proof networks. If targeting end users with lawsuits is both ineffective at stopping piracy and injurious to the image of copyright owners, then what to make of the lawsuits against the P2P software companies themselves? On one hand, it can be argued that when the media industry takes legal action against P2P companies, they are not damaging their reputation in the eyes of consumers as much as when the lawsuits are targeted towards end users. Are such lawsuits against the P2P companies actually effective in stemming the flow of piracy? Even with a favorable ruling in the Grokster case on appeal to the Supreme Court,
80. See, e.g., Boycott-RIAA.com, Our Mission/Why We Are Here, at http://www.boycott-riaa. com/mission (last accessed Mar. 10, 2005). 81. Andrew Orlowski, RIAA Withdraws $300m Lawsuit against Innocent Pensioner, The Register, Sept. 24, 2003, at http://www.theregister.corn20031O9124/riaa-withdraws_300m_lawsuitagainstl (last accessed Mar. 10, 2005). 82. Wired News, Lawsuits Damp Down P2P Audience, at http://www.wired.com/news/business/ 0,1367,60654,00.html (last accessed Mar. 10, 2005). 83. See Boycott-RIAA.com, RIAA Tactics Aren't Working, at http:/Iwww.boycott-riaa.com/article/print/7876 (last accessed Mar. 10, 2005). When confronted with the rising number of P2P users, in September 2003 an RIAA spokesman stated, "[Ojur enforcement efforts have stimulated conversation among parents, children and many others about the illegality of distributing copyrighted music online and its consequences." Id. 84. Wired News, supra note 82. 85. Dan Bell, Stats on P2P Show The 'Sue 'em all' Campaign Is a Failure,CD Freaks, Oct. 23, 2004, at http://www.cdfreaks.com/news2.php?ID=10760 (last accessed Mar. 10, 2005).
lawsuits against companies which distribute P2P software are unlikely to permanently solve the problem of illegal file sharing. What was seen at the time as a big win for "Big Media" in the Napster case did not stop illegal file sharing, so why should one expect a strengthening of secondary liability law as it relates to P2P to be the panacea? Moreover, many of the most popular P2P file sharing programs are based on the open source Gnutella client.86 The fact that the source code for this software is freely available makes it difficult for the media industry to target each and every version of the P2P file sharing software. Should a Grokster ruling emerge that strengthens the contributory liability laws in this area, future lawsuits against the P2P companies would have a decent chance of success. This is particularly true where the software in question is proprietary and commercial in nature, which would additionally leave its creator exposed to claims of vicarious infringement where the author or distributor could be located. Yet it is not difficult to imagine P2P software which is authored and distributed anonymously, and is built with source code that is freely available on the internet. 7 Such software need not be posted to a static website, it could be distributed via the P2P network itself, making a source determination difficult. The author, if one could be identified, would likely lack the deep pockets needed to redress huge claims of infringement on a secondary (or downstream) liability theory, or could be operating out of a foreign jurisdiction beyond the reach of the media industries' legal tentacles. If the hypothetical open source P2P client was distributed free of charge, and was devoid of features giving any commercial benefit to the author or distributor, the media industries would have a harder time making an alternative case for vicarious infringement.In sum, pursuing P2P companies on contributory liability grounds would at best provide fleeting relief from the piracy problem. For every for-profit popular P2P network that would be put out of business by a recalibration of the Sony doctrine, there would be ten new file sharing alternatives for consumers, all far more difficult for the media industry to stop. This is not to say that media rights holders should never pursue this option. Indeed, fleeting relief is often better than no relief at all. When Napster was effectively shut down, it took some time for users to realize that similar yet less lawsuit-prone software existed.8 9 Selectively targeting P2P networks which have
86. See TheRecordlndustry.com, Gnurella & Clients, at http://www.therecordindustry.com/ file-sharing/gnutella-clients-dir.htm (last accessed Mar. 10, 2005) (containing a noncomprehensive list of Gnutella based P2P client software). 87. One such free P2P client is Gnucleus. See generally Gnucleus, at http://www.gnucleus.com/ (last accessed Mar. 10, 2005) (the home page of the Gnucleus client). 88. A good example of a not-for-profit spyware- and adware-free P2P client is Soulseek. See Soulseek, at http://www.slsknet.org/ (last accessed Mar. 10, 2005) (the home page of the Soulseek client). 89. See Sam Costello, Napster Usage Nosedives 90 Percent, IDG News Service, June 6, 2001, available at http://www.pcworld.com/news/article/0,aid,51903,00.asp (last accessed Mar. 10, 2005); see
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large user bases on secondary liability grounds could be used effectively as a stopgap measure, but without exploring more proactive enforcement strategies, and without embracing P2P to further business goals, it is unlikely to solve the problem once and for all.
B. MORE PROACTIVE MEASURES
One alternative that rights holders should vigorously explore is the use of stronger proactive measures to combat piracy. The nature of P2P networks is such that, once a file appears on the network, it is instantly available for thousands of users to download. 90 The damage has been done and it becomes nearly impossible to unwind. Thus, retroactive measures such as the ones discussed above 91 are invariably going to be less effective at stopping the root cause of piracy. Conversely, proactive measures which prevent this initial leakage to the P2P networks from occurring are of particular value. Such proactive measures also contain the additional benefit of being less heavyhanded than the tactic of relying on lawsuits. Such measures might include the use of encryption technology which prevents the transfer of media content via P2P. There are pitfalls to such'an approach, however. First, if whatever locking solution copyright owners concoct is contained on the physical media, like a CD or DVD, it is likely to be circumvented at some point by savvy computer users. 92 Such proactive measures have gone awry in the past, for instance with the release of a Beastie Boys album that contained a "copy protection" program which silently installed itself on users' computers. 93 This program made it impossible for people to create CDs using other music tracks stored on their hard drive. 94 This created a backlash among unhappy customers who had grown accustomed to saving digital copies of their music on their computers and transferring them to CDs. 95 Whatever the dangers, this is not to say that copyright owners should not continue to try to find less intrusive proactive technological solutions to prevent piracy. As it stands now, the product is simply too easy to steal, and
also Michael Pastore, Net Users Finding P2P Music Alternatives, ClickZ Network, Oct. 11, 2001, at http://www.clickz.comlstats/sectors/entertainment/article.php/901921 (last accessed Mar. 10, 2005). After the Napster ruling, the total number of songs downloaded on Napster declined from 2.79 billion in February 2001 to 360 million in May 2001. Id. The number of songs downloaded on other P2P networks increased shortly thereafter, from 1.2 million users or non-Napster P2P services in March 2001 to 6.9 million users in August 2001. Id. 90. See Wikipedia, Peer-to-peer,supra note 34. 91. See discussion, supra Part IV. 92. See DeCSS Central, at http:/lwww.lemuria.orgldecss/hal200l.html (last accessed Mar. 10, 2005) (containing an example of one failed attempt at media encryption related to DVDs and an overview of the DeCSS decryption technology controversy). 93. Thomas C. Green, Beastie Boys CD Installs Virus, The Register, June 23, 2004, at http://www. theregister.co.uk/2004/06/23/beastieboy-cd-virus/ (last accessed Mar. 10, 2005). 94. Id. 95. See, e.g., Beastie Boys CD Installs Copy Protection,MacRumors, at http://forums.macrumors. com/showthread.php?p=892921 (last accessed Mar. 10, 2005).
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C. EMBRACE P2P
Finally, and perhaps most importantly, the media industries pillaged by piracy need to take a thorough and collective look at how they can make this new technology work for them rather than against them. In some respects, it is easy to find fault with the media industries for not recognizing this problem earlier. Media industries were in a particularly good position to foresee the potential piracy and file sharing problems well before they occurred, yet are only now beginning to utilize P2P and digital distribution to their advantage from a business perspective. While not an enforcement method per se, embracing P2P technology is the most effective proactive strategy these industries could adopt in order to combat piracy. The adoption of a friendlier attitude towards P2P technology has already begun in some respects. The financial and popular success of the iTunes service from Apple is testament to that fact. 99 In another such legitimate P2P effort, Wurld Media, developer of a proprietary P2P file-sharing network, recently inked a deal with Sony BMG, Universal Music Group and Warner Music Group in which those publishers will be opening their catalogs to the fledgling P2P network. 100
CONCLUSION
The big question here, of course, is money. The media industries have for the better part of this century been excessively retail-ori96. See Overpeer, supra note 75. 97. Id. 98. Id. 99. Apple's iTunes service sold 5 million songs in its first 2 months of operation. Apple Touts iTunes Success, Macworld.co.uk, June 6, 2003, available at http://www.pcworld.com/newsarticle/O,aid, l11304,00.asp (last accessed Mar. 10, 2005). 100. Bryan Osborne, New P2P Network Signs Deal With 3 Record Companies, Geek.com, Nov. 29, 2004, at http:f/www.geek.coni/news/geeknews/2004Novgee20041129027997.htm (last accessed Mar. 10, 2005).
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ented. Their product has been tangible, and their entire business model has been built on a brick-and-mortar foundation. With the advent of P2P, users have grown used to getting their media for free and without the need for a tangible record, tape or CD. Whatever pricing strategy the industry devises will have to take this fact into account. Whether, for example, it takes the form of a subscription service or a small per song charge, it is clear that P2P is an area copyright owners should explore, embrace and even exploit.
Bridgeport Music, Inc. v. Dimension Films 383 F. 3d 390 (6th Cir. 2004)
By CHARLES MCCARTHY*
BACKGROUND
Plaintiffs, Bridgeport Music, Inc., Westbound Records, Inc., Southfield Music, Inc., and Nine Records, Inc., respectively are in the business of music publishing, business recording, and distribution. They hold copyrights to both the musical composition and the sound recordings for "Get Off Your Ass and Jam" ("Jam"). Defendant motion picture producers Dimension Films and No Limit Films allegedly used a sample from Plaintiffs' "Jam" musical composition and sound recording in their rap song "100 Miles and Runnin"' ("100 Miles") that was included on the soundtrack of the movie I Got the Hook Up ("Hook Up"). The soundtrack of Hook Up featured portions of 100 Miles which included the allegedly infringing sample from Jam. Specifically, a three-note combination solo guitar riff was copied, the pitch lowered, and the copied piece "looped" and extended to 16 beats. The two-second sample appears in 100 Miles in five places, each looped segment lasting approximately seven seconds. Plaintiffs sued defendants for copyright infringement for their unlicensed use of "Jam." The U.S. District Court for the Middle District of Tennessee held that the alleged infringement was de minimis and therefore not actionable. Plaintiffs appealed the U.S. District Court decision. The district court examined the de minimis question under the "fragmented literal similarity test." After listening to the copied segment, the sample, and both songs, the district court found that no reasonable juror, even one familiar with the source, would recognize the source of the sample without having been told of the source. Additionally, the elements of minimal copying and the lack of qualitative similarity between the works did not rise to the level of appropriation; plaintiffs could not prevail on their claims of copyright infringement. Plaintiffs contended that the de minimis test was appropriate for the analysis of copyright infringement of the musical composition, but was inappropriate for the infringement analysis of the sound recording.
*
Mr. McCarthy is a 2005 Juris Doctor candidate at the University of San Francisco School of
Law. 175
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On appeal, the Court of Appeals for the Sixth Circuit reviewed the district court's decision de novo.
ISSUE
What is the appropriate test for infringement when the defendant has digitally sampled a copyrighted sound recording?
DECISION
The standards appropriate for determining infringement of a musical composition copyright (e.g. substantial similarity or de minimis) are not appropriate for determining infringement of a sound recording. The appropriate analysis is a literal reading of the relevant provisions of the copyright statute. The appeals court thus held that one cannot sample any portion, however small or subsequently transformed, of a copyrighted sound recording without authorization from the copyright holder. The appeals court reversed the summary judgment decision of the district court.
REASONING
Sound recordings and their underlying musical compositions are separate works with their own distinct copyrights. The Appellate court held that the district court employed an incorrect analytical framework, substituting a musical composition copyright infringement analysis where it should have employed a literal reading of the copyright statutes applicable to sound recordings. The court explained that this was the proper analysis according to the provisions of the copyright statute governing sound recordings. The court limited its decision to an instance of digital sampling of a sound recording protected by a valid copyright. Since this case involved a digital sample of a copyrighted sound recording, the proper analysis was whether that sample had been used without authorization. The court based this holding on a straightforward reading of the statutory language of the Copyright Act. Section 114(b) of Title 17 of the United States Code states that "[t]he exclusive right of the owner of copyright in a sound recording under clause (1) of Section 106 is limited to the right to duplicate the sound recording in the form of phonorecords or copies that directly or indirectly recapture the actual sounds fixed in the recording." The section further provides that "[t]he exclusive right of the owner of copyright in a sound recording.., is limited to the right to prepare a derivative work in which the actual sounds fixed in the sound recording are rearranged, remixed, or otherwise altered in sequence or quality." Thus, the sound recording owner has the exclusive right to "sample" the work, or license others to sample that work. The defendants in this case were not the owners of the copyright in the sound recording nor
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did they receive authorization from the plaintiffs, and thus they did not have the right to sample the copyrighted sound recording held by the plaintiffs. The court supported its reasoning by noting that a literal reading of the provisions of the Copyright Act governing sound recordings would provide a clear and easily enforceable rule: get a license or do not sample copyrighted sound recordings. Bright line rules in this often confusing and contradictory area of the law would reduce costly litigation and ultimately encourage creativity. Further, this would not stifle creativity in any way because an artist wishing to incorporate a certain sequence of notes from another work into his or her own re,cording is free to duplicate that sound in the studio. The market would conceivably control the price of a license because a license would cost no greater than what it would cost the person seeking the license to duplicate the sample in a new recording. The record industry has the ability to work out guidelines for sampling sound recordings, including a fixed schedule of license fees. Lastly, sound recording infringement cases ought to be governed by a literal reading of the statute because sampling is never accidental. Sampling is unlike the case of a composer who has a melody in his head and seeks to reproduce it, perhaps not even realizing that the melody in his head came from some work he heard before. When one samples a sound recording, one knows is to be another's work product. In this sense, sampling constitutes a physical taking rather than an intellectual one. The court reiterated that its ruling applied only to the actual sound recordings of copyright holders. The public at large is free to imitate or simulate the guitar riffs in Jam so long as an actual copy of the sound recording itself is not used.
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Irdeto Access, Inc. v. Echostar Satellite Corp. 383 F.3d 1295 (Fed. Cir. 2004)
By
JONATHAN TAM*
BACKGROUND
Petitioner Irdeto Access, Inc. ("Irdeto") patented a system for encrypting and decrypting digital information signals as they are transmitted. Irdeto used this system for transmitting satellite television signals. Echostar Satellite Corporation, Kudelski, S.A., and Nagravision, S.A. (collectively, "Echostar") created a similar system called the DISH Network system. Irdeto sued Echostar for patent infringement. The United States District Court for the District of Colorado granted summary judgment to Echostar. The district court found that although the DISH Network system was similar to Irdeto's patented system, there was one important difference. The patented system allowed for "groups" of subscriber subsets and the DISH Network had a single "group" that included every subscriber in the system. In making this decision, the district court relied on exchanges between the patentee and the examiner during patent prosecution. Irdeto's initial patent application was rejected because the examiner found that the term "group" had no generally accepted meaning within the scope of the technology. Irdeto modified the patent application, declaring that the patentee could define his own terms and that those definitions were entirely contained within the patent. The examiner allowed the patent after finding that the term "group," inter alia, was satisfactorily defined within the patent itself and that the term did not rely on any general dictionary or expert technical definitions. Looking to the application and these exchanges between the patentee and examiner, the district court determined that the term "group" was entirely defined within the text of the patent itself as a subset of the subscriber base. While the general dictionary definition of "group" is not limited to subsets and a single group may contain every member, Irdeto could not rely on definitions outside the patent. The language of the patent impliedly defined the term "group" as always being a subset of subscribers. The district court thus distin*
Mr. Tam is a 2007 Juris Doctor candidate at the University of San Francisco School of Law. 179
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guished Echostar's system, which had only a single "group" that included all subscribers. Irdeto appealed this decision.
ISSUE
Can the term "group," which has no generally accepted technical meaning, be defined by its general dictionary definition or is it limited by its explicit and implicit definition within the patent?
DECISION
The definition of the term "group" is limited by its explicit and implicit definition within the patent. The term "group" has no generally accepted technical meaning and since Irdeto's intent was for the term to be defined entirely within the patent, Irdeto may not rely on any definitions except those in the patent itself. The appeals court affirmed the district court's decision for summary judgment for Echostar.
REASONING
Irdeto argued that it could use the general dictionary definition of the term "group" because it had never disclaimed such usage. The appeals court disagreed, saying that when a term falls under the scope of technical dictionaries and expert artisans, general dictionaries cannot be used. The patent completely defined the term "group" and external resources are irrelevant. The court relied in part on Irdeto's response to the original patent rejection, in which it said that the patent independently defined the terms. The court then looked at the patent for explicit and implicit definitions of the term "group." It found that the term is consistently used to mean a subset and never the entire subscriber base. Irdeto argued that such use was only permissive and that it did not exclude the possibility of a "group" that included all subscribers. The court was unconvinced because the language of the patent did not support Irdeto's argument. Irdeto presented cases to show that general dictionary meanings can be excluded only when they are clearly and explicitly disclaimed within the patent. The court showed that Irdeto failed to accurately analyze each case and that the cases do not support this argument. The court stated that Irdeto cannot declare that the patent wholly defines the terms and then rely on other resources. Limited to the patent itself, the court implicitly found that the term "group" was never intended to mean the entire subscriber base. It was always limited to a subset. Since Echostar's system has only a single "group" that includes all subscribers, the court affirmed Echostar's summary judgment.
KP Permanent Make-up, Inc. v. Lasting Impression I, Inc. 125 S.Ct. 542 (2004)
By
MIA KIM*
-BACKGROUND
Competing manufacturers KP Permanent Make-up, Inc. ("KP") and Lasting Impression I, Inc. ("Lasting Impression") both employed the term "micro color" to market and sell their permanent make-up products. KP claimed to have used the single-word version "Microcolor" since 1990 or 1991. In 1993, Lasting Impression registered a mark with the United States Patent and Trademark Office that included the term "Micro Colors." This mark became incontestable in 1999. Lasting Impression demanded KP stop using "Microcolor" to advertise KP's products. KP responded with a declaratory judgment action against Lasting Impression, alleging that KP's use was protected and that Lasting Impression did not have the exclusive ight to the mark "Micro Colors." Lasting Impression counterclaimed on the grounds of trademark infringement. KP sought summary judgment asserting the affirmative defense of fair use. The District Court for the Central District of California entered summary judgment for KP because it considered KP's use to be in good faith since it used the term descriptively and had been doing so continuously since 1990. The Court of Appeals for the Ninth Circuit reversed and remanded, focusing on the presence of consumer confusion. The court held that fair use could not exist when consumer confusion was probable. The court of appeals thus implied that a defendant had the burden of demonstrating the absence of consumer confusion when raising the defense of fair use. Because of the circuit split on this issue, the Supreme Court granted certiorari.
ISSUE
Must a defendant asserting a fair use defense to a trademark infringement claim demonstrate that its use of the mark is unlikely to cause consumer confusion?
*
Ms. Kim is a 2006 Juris Doctor candidate at the University of San Francisco School of Law.
181

DECISION
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A defendant raising the affirmative defense of fair use to a trademark infringement claim does not have the burden of negating the likelihood of consumer confusion. The Court vacated the judgment of the court of appeals and the case was remanded for further proceedings.
REASONING
A successful fair use defense to an infringement claim is not incompatible with some consumer confusion, even when it is asserted against an incontestable mark. To bring a trademark infringement claim under the Lanham Act, 15 U.S.C. 1051 et seq., a plaintiff must meet two requirements. It must show that the defendant is employing an imitation of the mark in commerce, and that the defendant's practice is likely to produce consumer confusion about the source of the goods or services. Though incontestable status gives the plaintiff the exclusive right to use the mark in commerce, a successful action against a defendant requires a showing of both elements. The affirmative defense of fair use to an infringement claim is available to a defendant who uses the mark in good faith to describe the defendant's goods, services, or their geographic origin. Therefore, where a defendant successfully asserts a fair use defense, a plaintiff cannot enjoin a defendant from using an imitating mark, even if the plaintiff can demonstrate consumer confusion. The Court discussed that nowhere in the fair use defense statute, 15 U.S.C. 1115(b), does Congress mention the likelihood of confusion. Yet, a plaintiff making a claim of trademark infringement under 15 U.S.C. 1114 is required to prove likelihood of confusion. Since both provisions arise from the same statute, the Lanham Act, Congress' decision to place particular language in one section, but omit it in another, is presumed to be intentional rather than an oversight. Lasting Impression focused on the phrase "used fairly" in 15 U.S.C. 1115(b)(4), which lays out the fair use defense. First, Lasting Impression claimed that Congress intended this language to require a defendant to negate any likelihood of consumer confusion. Second, this language indirectly incorporates the likelihood of confusion test from the common law area of unfair competition. Lasting Impression offered evidence of cases illustrating circumstances where the likelihood of confusion led to a rejection of a fair use defense. The Court disagreed on two levels. First, while the cases offered as evidence did indeed take into account consumer confusion, they in no way held that a finding of consumer confusion alone was dispositive. Second, from a litigation standpoint, it is unreasonable to place this kind of burden on the defendant. This would foreclose the need for an affirmative defense of fair use entirely because all a defendant
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would have to do is show the plaintiff is unable to prove the elements of its infringement claim. This makes the affirmative defense wholly unnecessary. Lasting Impression also argued that since there was no pre-1988 requirement that a mark holder prove likelihood of confusion, it made sense to require the defendant to prove its absence when using fair use. It argued that the Trademark Law Revision Act of 1988 simply failed to wholly transfer that burden to the plaintiff. The Court explained that Lasting Impression's assumption was simply untrue. The Court restated the rule that while incontestability does grant a presumption of an exclusive right to use the registered mark, it does not exempt the mark holder from proving likelihood of confusion. The Court held that risk of confusion does not foreclose a fair use defense, thus fair use can occur simultaneously with some degree of confusion. The Court made clear that it was not dismissing the relevance of consumer confusion in a fair use assessment. It simply held that a defendant is not required to show an absence of likelihood of consumer confusion when bringing a defense of fair use.
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Lexmark International, Inc. v. Static Control Components, Inc. 387 F.3d 522 (6th Cir. 2004)
By
DANIEL J. PFEFFERBAUM*
BACKGROUND
Lexmark, maker of laser and inkjet printers and cartridges, claims copyright protection in their Toner Loading Program ("TLP") and Printer Engine Program ("PEP"). The TLP, a simple eight-command program used to calculate toner levels, is located on a microchip mounted on each toner cartridge. The PEP is a larger, more complex program that resides in the printer memory and controls its functions. Both parties acknowledge Lexmark's valid copyright in the PEP. Lexmark employs a "pre-bate" program with business consumers whereby toner cartridges are sold at an up-front discount. In return, the consumer, pursuant to a shrink-wrap license, agrees to use the cartridge only once before returning it directly to Lexmark. To enforce this agreement, Lexmark uses an authentication sequence to verify compatibility between the printer and the toner cartridge. Each time the printer is powered on, the toner and the printer generate a "Message Authentication Code." If the values are not identical, the printer returns an error message and thus prevents consumers from using unauthorized cartridges. After authentication, the PEP downloads the TLP from the toner cartridge. To verify the integrity of the download, the PEP performs a "checksum operation" on the bytes of the PEP. The checksum value generated by the PEP is compared to a value stored elsewhere on the toner cartridge. If the values do not match, the printer assumes that the download from the toner was corrupted, and it stops functioning. The defendant, Static Control Components ("SCC"), produces the SMARTEK chip, which it sells to third-party cartridge remanufacturers. The chip allows a remanufacturer to refill and sell the pre-bate cartridges, successfully circumventing Lexmark's pre-bate program. The SMARTEK chip is compatible with Lexmark's authentication sequence and it contains an identical copy of the TLP, allowing the remanufactured cartridge to function just like a Lexmark cartridge.
*
Mr. Pfefferbaum is a 2006 Juris Doctor candidate at the University of San Francisco School of
Law. 185
[Vol. 9:185
Lexmark brought suit in district court seeking to enjoin SCC from producing the SMARTEK chip. First, Lexmark claimed that SCC infringed federal copyright protection of the TLP under 17 U.S.C. 102 by replicating it on the SMARTEK chip. Second, it claimed that SMARTEK violated the Digital Millennium Copyright Act ("DMCA")1 by circumventing Lexmark's authentication sequence to access the PEP. Third, it claimed that SMARTEK violated the DMCA by circumventing Lexmark's authentication sequence to access the TLP. The district court found Lexmark established a likelihood of success on each of its claims and issued a preliminary injunction. First, the district court determined that the TLP satisfied the originality requirement of 17 U.S.C. 102 and therefore Lexmark held a valid copyright. Second, the district court determined that the authentication sequence was a technological measure designed to control access to two copyrighted works - the TLP and PEP. Because the SMARTEK chip was designed to circumvent this protection it was in violation of the DMCA. SCC appealed and the Court of Appeals for the Sixth Circuit applied the abuse-of-discretion standard in review.
ISSUES
First, does the TLP satisfy the originality requirement for copyright protection when analyzed under the correct legal standard? Second, in light of interoperability constraints, does the TLP function as a lock-out code? Third, does the SMARTEK chip provide access to the TLP or PEP by circumventing the authentication sequence in violation of the DMCA?
DECISION
Lexmark did not demonstrate a likelihood of success on its infringement claim because the TLP did not satisfy the originality requirement for valid copyright protection. Furthermore, the TLP functioned as a lock-out code and was therefore not protectable by copyright. Lexmark did not demonstrate a likelihood of success on its DMCA claims. Access to the TLP and PEP was not provided by the authentication sequence. Instead, the authentication sequence was read from the printer memory, where it existed unprotected and readily accessible. To the extent that Lexmark failed on its copyright claim for the TLP, the DMCA does not apply.
1. 17 U.S.C. 1201
2005] LEXMARK INTL., INC. v. STATIC CONTROL COMP., INC. 187

REASONING
The district court committed three related legal errors when it determined that the SMARTEK chip infringed Lexmark's copyright protection in the TLP. First, the district court found the TLP copyright valid because the program could have been written in multiple ways, erroneously presuming that the validity of copyright protection for computer programs turns only on the availability of alternative ways of writing the program. This analysis contradicted the Supreme Court's decision in Feist Publications, Inc. v. Rural Telephone Service Co., 2 which required not simply that alternatives exist, but that they be feasible given the setting. Additionally, the district court failed to apply the doctrines of merger and scenes a faire in determining copyright protection. Second, applying the correct analysis, it was unlikely that the TLP met the originality requirement for copyright protection under 17 U.S.C. 102. Copyright protection does not extend to works that are no more than an idea, process or method of operation or where external constraints dictate the form of expression. The district court failed to account for considerations of functionality, compatibility and efficiency when evaluating the originality of the TLP. The PEP understood only a single language composed of eight commands. Furthermore, the TLP needed to be exactly fifty-five bytes in size to satisfy the checksum operation. Given these constraints, the programmer was left little or no room for creative expression. The district court was persuaded by Lexmark's expert witness, however, who stated that over fifty permutations of the TLP code could potentially exist. The appeals court rejected these alterations as inefficient or repetitious and therefore too trivial to constitute substantive alternatives to the TLP. Third, the district court wrongly concluded that the TLP did not function as a lock-out code. The compatibility requirements imposed by the checksum operation justified the wholesale copying of the TLP. This checksum operation made variation of the TLP "computationally impossible" because alteration by just one byte would thwart compatibility. Since the TLP functioned as a lock-out code, it is considered a functional work and thus not protected by copyright. In light of these considerations, the court of appeals rejected the district court's finding that Lexmark would likely prevail on its copyright infringement claim. The court of appeals also dismissed the district court's application of the DMCA to the PEP and TLP. The district court found that the authentication sequence controlled access to the copyright-protected PEP and TLP by defining "access" in light of the consumer's ability to make use of these programs. The Court of Appeals rejected this line
2. Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340 (1991)
[Vol. 9: 185
of reasoning, concluding instead that it is the purchase of a printer that provides access to the PEP. Since the PEP is not technologically protected in any way, it could be read directly from the printer memory without circumvention of the authentication sequence. There was therefore no illegal circumvention. The court acknowledged that the authentication code did protect one form of access, but refused to apply the DMCA where another form of access remained available. The court of appeals applied the same reasoning to the TLP, finding that the purchase of a printer and toner cartridge provided access, not the authentication sequence. When the TLP was downloaded by the PEP, it was readily-accessible by reading the printer memory. Furthermore, the SMARTEK chip did not provide access to the TLP, but replaced it entirely. Finally, the DMCA applies only to copyrighted works. The court of appeals placed significant doubt on the validity of Lexmark's copyright claims in the TLP, rendering its DMCA claim moot. The court of appeals thus did not find that Lexmark demonstrated a likelihood of success on either DMCA claim.
NTP, Inc. v. Research In Motion, Ltd. 392 F.3d 1336 (Fed. Cir. 2004)
By
DAVID McDONOUGH*
BACKGROUND
Research in Motion, Ltd. ("RIM") appealed the decision of the United States District Court for the Eastern District of Virginia that found RIM's wireless electronic mail system infringed NTP, Inc.'s ("NTP") patent. The court issued a permanent injunction and awarded nearly $54 million in damages. NTP is the owner of several patents stemming from one parent patent, relating to technology that permits electronic mail systems to communicate with radio frequency ("RF") wireless communications networks. RIM's allegedly-infringing product is the BlackBerry system, which allows users to send and receive electronic mail messages from a handheld unit that interacts with RF wireless communications networks. On appeal, RIM argued that the district court's jury instructions contained improper interpretations of several claim terms which prejudiced the jury's decision. RIM urged that if these disputed terms were defined according to its interpretation, RIM's invention would be outside the scope of NTP's patents and thus the judgment of infringement should be vacated.
ISSUES
The issues were (1) whether the district court properly construed the claim terms "electronic mail system," "gateway switch," "originating processor," and "originated information"; (2) if the terms were not properly construed, whether the erroneous construction prejudiced the jury's verdict; (3) whether RIM's BlackBerry was non-infringing because its device was only reachable through a RF pathway; (4) whether NTP's patents required the RF receiver and the destination processor to be physically separated from each other; and (5) whether
the extraterritorial location of a component of the accused system bars application of the patent infringement statute.
*
Mr. McDonough is a 2006 Juris Doctor candidate at the University of San Francisco School of
Law.
189 HeinOnline -- 9 Intell. Prop. L. Bull. 189 2004-2005

DECISION
[Vol. 9: 189
The Court of Appeals for the Federal Circuit affirmed the district court's interpretation of the terms "electronic mail system" and "gateway switch" but found error in the interpretation of the term "originating processor." The court remanded the case to determine whether the erroneous construction of this term had a prejudicial effect on the jury's verdict. The court rejected RIM's arguments that its system was non-infringing because its Blackberry system included both wireline and wireless pathways. NTP's patents also did not require the RF receiver and destination to be physically separated from each other. The court determined that the location of a component of the BlackBerry system in Canada did not bar application of the patent infringement statute because the component was still fully accessible by users of the infringing system within the United States.
REASONING
RIM first argued that the term "electronic mail system" refers to technology that "pulls" electronic mail from a server after a user initiates a connection. This is distinguished from its BlackBerry system which uses "push" technology that delivers the message to the handheld without the need to establish a user-initiated server connection. The court declined to address this argument because RIM had not raised it before the district court and it was thus waived on appeal. RIM also argued that the "electronic mail system" term was limited to a wireline only system (as opposed to a RF wireless system). The court rejected this assertion because the written description of the claim contradicted such a limited definition. A figure in the written description demonstrated an example of an electronic mail system which included both wireline and RF architectures. Furthermore, the prosecution history of the parent patent included nothing to suggest that the term was limited to wireline structures. In fact, in one amendment to the patent, the inventor expressly stated that the claim was inclusive of both wireline and wireless architectures. In urging the court to adopt its definition of "gateway switch," RIM claimed that the gateway switch was part of the electronic mail system and functioned to implement the use of "pull" technology. The court noted that NTP's patent claim language does not require the use of pull technology, and therefore refused to narrowly interpret a gateway switch as having to enable only pull technology. The district court interpreted the term "originating processor" ("OP") to include both the processor that introduces the electronic mail message into the electronic mail system as well as downstream processors that add the address information or route the message to the recipient. The court, siding with RIM, found the district court's construction of OP to be in error. The court referred to the claim
2005]
NTP, INC. v. RESEARCH IN MOTION, LTD.
language of the parent patent which demonstrated that the OP is not inclusive of every processor that initiates data (such as a gateway switch which can originate address information.) Additionally, the written description in the specification of the patent explicitly states that the OP is the processor where the message text is generated. The court noted that one skilled in the art would not read the written description of the patent as suggesting that a gateway switch is an OP merely because it originates addressee information onto the electronic mail message. Finally, the court noted that an examination of the drawings included in the patent clearly portrayed the gateway switch as a separate component from the OP. Finding the construction of the OP term erroneous, the court remanded to the district court the issue of whether this erroneous construction prejudiced the jury verdict. RIM also sought to establish that claims in two of NTP's patents required that at least one destination processor be reachable from "dual pathways," that is, from both the wireline electronic mail system and the RF wireless information transmission network. RIM asserted that since its BlackBerry handhelds communicate only through an RF pathway, the Blackberry system did not infringe on NTP's patents. The court found that RIM misinterpreted the prosecution history of the NTP patents as requiring the same destination processor to be accessible from both wireline and wireless pathways when instead the NTP system allowed various destination processors to be accessible through either pathway. Furthermore, because RIM's BlackBerry system is also in the "electronic mail system," which has been defined to include both wireline and wireless pathways, the BlackBerry system is not distinguishable from NTP's patented invention in this respect. RIM next argued that its device was distinguishable, and therefore noninfringing, because NTP's patents required the RF receiver and the destination processor to be physically separated from each other. Although NTP's patent provided the option of physical separateness as a preferred embodiment, the court found no language in the claims that excluded the two entities from being physically housed together. RIM finally called on the fact that a critical component of RIM's system-the BlackBerry Relay-was located outside the United States, asserting that this barred application of the patent infringement statute. Since the physical location of every component required for its electronic mail system was not located in the United States, RIM argued that the invention was not being practiced in the United States. The court rejected this argument because use of the Relay and all other components occurred within the United States, even though the BlackBerry Relay was located in Canada, thus satisfying the territoriality requirement of 35 U.S.C. 271(a).
[Vol. 9: 189
INTELLECTUAL PROPERTY LAW BULLETIN
INDEX TO VOLUME 9
AUTHOR INDEX TO ARTICLES, COMMENTS, AND SURVEYS

ANDREWS, RACHELLE: ELECTRONIC COMMERCE: LESSONS
LEARNED FROM THE EUROPEAN LEGAL MODEL .............

CARSON, JOHN, ERIC NELSON, AND NATHANIEL DURRANCE: HOW TO EFFECTIVELY BUILD AND PROTECT BUSINESS ASSETS WITH A STRATEGIC PATENT PORTFOLIO .............. CHAIKOVSKY, YAR AND ADRIAN PERCER: GLOBALIZATION, TECHNOLOGY WITHOUT BOUNDARIES & THE SCOPE OF U.S.
81
PATENT LAW .................................................

CHANG, HUNG P.: IN RE ELSNER ................................. CHANG, NINA L.: No GNU Is GOOD G'NEWS FOR SCO: IMPLICATIONS OF SCO v. IBM ...............................
COCKRILL, HOWARD: LUCK'S Music LIBRARY, INC. V.
95 67 47 69 103
A SHCROFT ...................................................
COCKRILL, HOWARD: TUNING THE DIAL ON INTERNET RADIO:
THE DPRA, THE DMCA & THE GENERAL PUBLIC

PERFORMANCE RIGHT IN SOUND RECORDINGS ...............
CONNOR, TIMOTHY C.: AFTER DASTAR: CAN A RIGHT OF ATTRIBUTION STILL EXIST UNDER 4 3 (A) OF THE LANHAM
A CT ? .........
. .. ... .... . ..... .. ... .. ... ... ... .. .. ... .. .. ... .
11
DURRANCE, NATHANIEL, JOHN CARSON AND ERIC NELSON: WITH A STRATEGIC PATENT PORTFOLIO ......................
How
1
TO EFFECTIVELY BUILD AND PROTECT BUSINESS ASSETS GLADSTONE, HEATHER: I.M.S. INQUIRY MANAGEMENT SYSTEMS,
INC. v. BERKSHIRE INFORMATION SYSTEMS, INC ..............
65 117 77
181
Hsu,
EDDY: ANTITRUST REGULATION APPLIED TO PROBLEMS IN
CYBERSPACE: ITUNES AND IPOD .............................
K.: PFIZER, INC. v. DR. REDDY'S LABORATORIES, L TD . ............ ............................................ KIM, MIA: KP PERMANENT MAKE-UP, INC. V. LASTING
JOE, TED IMPRESSION I, INC............................................ MCCARTHY, CHARLES: BRIDGEPORT Music, INC. v. DIMENSION
F ILM S ........................................................
MCCARTHY, CHARLES: METATAGS AND THE SALE OF KEYWORDS IN SEARCH ENGINE ADVERTISING: CONFUSING CONSUMER CONFUSION WITH CHOICE ....................................
175 137 189
MCDONOUGH, DAVID:
NTP, INC. V. RESEARCH IN MOTION, L TD . .........................................................

TO EFFECTIVELY BUILD AND PROTECT BUSINESS ASSETS WITH A STRATEGIC PATENT PORTFOLIO ......................
NELSON, ERIC, JOHN CARSON AND NATHANIEL DURRANCE: How I
PERCER, ADRIAN AND YAR CHAIKOVSKY: GLOBALIZATION, TECHNOLOGY WITHOUT BOUNDARIES & THE SCOPE OF U.S.
PATENT LAW .................................................

PFEFFERBAUM, DANIEL J.: LEXMARK INTERNATIONAL, INC. V.
95
STATIC CONTROL COMPONENTS, INC ..........................

PONTES, DAN: REWINDING SONY: CAN THE SUPREME COURT
185 159 73
AND BIG MEDIA GROK P2P? ................................ SASIS, ELEANOR: MGM STUDIOS, INC. V. GROKSTER LTD .........
SHERMAN, DREW: THE RIGHT OF PUBLICITY AND THE FIRST AMENDMENT DEFENSE IN CALIFORNIA ....................... TAM, JONATHAN: IRDETO ACCESS, INC. V. ECHOSTAR SATELLITE C O RP .........................................................
29 179
TITLE INDEX TO ARTICLES, COMMENTS AND SURVEYS

AFTER DASTAR: CAN A RIGHT OF ATrRIBUTION STILL EXIST
4 3 (A) OF THE LANHAM AcT? By Timothy C. Connor.......................................

UNDER ANTITRUST REGULATION APPLIED TO PROBLEMS IN CYBERSPACE:
11 117 175
iTuNES
AND IPoD
By Eddy H su ................................................
BRIDGEPORT MUSIC, INC. V. DIMENSION FILMS
By Charles M cCarthy ........................................

ELECTRONIC COMMERCE: LESSONS LEARNED FROM THE EUROPEAN LEGAL MODEL
By Rachelie A ndrews.........................................
GLOBALIZATION, TECHNOLOGY WITHOUT BOUNDARIES & THE
81 95 1 65 67 179 181 185 69
SCOPE OF U.S. PATENT LAW
By Yar Chaikovsky and Adrian Percer .......................

How TO EFFECTIVELY BUILD AND PROTECT BUSINESS ASSETS
WITH A STRATEGIC PATENT PORTFOLIO
By John Carson, Eric Nelson, and Nathaniel Durrance .......

I.M.S.
INQUIRY MANAGEMENT SYSTEMS, INC. v. BERKSHIRE INFORMATION SYSTEMS, INC.
By Heather Gladstone ........................................

IN RE ELSNER
By Hung P. Chang ..........................................

IRDETO ACCESS, INC. V. ECHOSTAR SATELLITE CORP.
By Jonathan Tam ............................................ KP

PERMANENT MAKE-UP, INC. V. LASTING IMPRESSION 1, INC.
B y Mia K im .................................................
LEXMARK INTERNATIONAL, INC. V. STATIC CONTROL COMPONENTS, INC.
By Daniel J. Pfefferbaum ....................................

LUCK'S Music LIBRARY, INC. V. ASHCROFT
By H oward Cockrill ..........................................

METATAGS AND THE SALE OF KEYWORDS IN SEARCH ENGINE ADVERTISING: CONFUSING CONSUMER CONFUSION WITH CHOICE
By Charles M cCarthy ........................................ MGM STUDIOS, INC. v. GROKSTER LTD. By Eleanor Sasis ............................................. No GNU is GOOD G'NEWS FOR SCO: IMPLICATIONS OF SCO v. IBM By Nina L. Chang ........................................... NTP, INC. v. RESEARCH IN MOTION, LTD. By David McDonough .............................
PFIZER, INC. V. DR. REDDY'S LABORATORIES, LTD.
137 73 47 189 77 159
By Ted K . Joe ................................................

REWINDING SONY: GROK CAN THE SUPREME COURT AND BIG MEDIA
P2P? By Dan Pontes ...............................................
THE RIGHT OF PUBLICITY AND THE FIRST AMENDMENT DEFENSE IN CALIFORNIA
By D rew Sherman ........................................... TUNING THE DIAL ON INTERNET RADIO: THE DPRA, THE DMCA & THE GENERAL PUBLIC PERFORMANCE RIGHT IN
SOUND RECORDINGS
29
By H oward Cockrill .........................................
103
SUBJECT INDEX TO ARTICLES, COMMENTS AND SURVEYS ANTITRUST LAW Antitrust Regulation Applied to Problems in Cyberspace: iTunes and iPod ................................................... 117 COPYRIGHT LAW Bridgeport Music, Inc. v. Dimension Films .................... I.M.S. Inquiry Management Systems, Inc. v. Berkshire Information System s, Inc ........................................... Lexmark International, Inc. v. Static Control Components, Inc. ............................................. Luck's Music Library, Inc. v. Ashcroft ........................ MGM Studios, Inc. v. Grokster Ltd ............................ Rewinding Sony: Can the Supreme Court and Big Media Grok P2P ? ....................................................... Tuning the Dial on Internet Radio: The DPRA, the DMCA & the General Public Performance Right in Sound R ecordings ................................................
175 65 185 69 73 159 103
COMPUTER LAW Lexmark International, Inc. v. Static Control Components, In c ......................................................... 185 No GNU is Good G'News for SCO: Implications of SCO v. IB M ....................................................... 47 CYBERLAW Electronic Commerce: Lessons Learned From the European Legal M odel ..................................................... 81 Metatags and the Sale of Keywords in Search Engine Advertising: Confusing Consumer Confusion with Choice .......... 137 MGM Studios, Inc. v. Grokster Ltd ............................ 73 Rewinding Sony: Can the Supreme Court and Big Media Grok P2P ? ....................................................... 159 Tuning the Dial on Internet Radio: The DPRA, the DMCA & the General Public Performance Right in Sound Recordings ........................................................ 103 FIRST AMENDMENT The Right of Publicity and the First Amendment Defense in California .................................................. INTERNATIONAL LAW Electronic Commerce: Lessons Learned From the European L egal M odel ............................................... Globalization, Technology without Boundaries & the Scope of U .S. Patent Law ........................................... Luck's Music Library, Inc. v. Ashcroft ........................
29
81 95 69
PATENT LAW Globalization, Technology without Boundaries & the Scope of 95 U .S. Patent Law ........................................... How to Effectively Build and Protect Business Assets with a 1 Strategic Patent Portfolio .................................. 67 In re E isner ................................................... 179 Irdeto Access, Inc. v. Echostar Satellite Corp .................. 189 NTP, Inc. v. Research In Motion, Ltd ......................... 77 Pfizer, Inc. v. Dr. Reddy's Laboratories, Ltd ................... RIGHT OF PUBLICITY The Right of Publicity and the First Amendment Defense in California ..................................................
29
TRADEMARK LAW After Dastar: Can a Right of Attribution Still Exist under 11 43(a) of the Lanham Act? ............................... KP Permanent Make-up, Inc. v. Lasting Impression I, Inc..... 181 Metatags and the Sale of Keywords in Search Engine Advertis137 ing: Confusing Consumer Confusion with Choice ..........

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Antitrust Regulation Applied to Problems in Cyberspace: iTunes and iPod

117 HeinOnline -- 9 Intell. Prop. L. Bull. 117 2004-2005

Copyright 2004-2005, Intellectual Property Law Bulletin

INTELL. PROP. L. BULL.

WHY AND HOW COPYRIGHT INFRINGEMENT OCCURS

HeinOnline -- 9 Intell. Prop. L. Bull. 118 2004-2005

Copyright 2004-2005, Intellectual Property Law Bulletin

ITUNES, IPOD AND ANTITRUST

PREVIOUS ATTEMPTS AT STEMMING COPYRIGHT INFRINGEMENT HAVE MIXED SUCCESS

HeinOnline -- 9 Intell. Prop. L. Bull. 119 2004-2005

Copyright 2004-2005, Intellectual Property Law Bulletin

INTELL. PROP. L. BULL.

individually or as albums. 27 Since no CD production costs are in18. Id. at 352.

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ITUNES, IPOD AND ANTITRUST

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INTELL. PROP. L. BULL.

ANTITRUST: THE BACKGROUND ON TYING

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ITUNES, IPOD AND ANTITRUST

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ANTITRUST PROTECTS COMPETITION AND NOT COMPETITORS

product or a lower price but because of his power or leverage in

Copyright 2004-2005, Intellectual Property Law Bulletin

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ITUNES, IPOD AND ANTITRUST

BY TYING THE IPOD TO

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INTELL. PROP. L. BULL.

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ITUNES, IPOD AND ANTITRUST

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ITUNES, IPOD AND ANTITRUST

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INTELL. PROP. L. BULL.

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ITUNES, IPOD AND ANTITRUST

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INTELL. PROP. L. BULL.

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ITUNES, IPOD AND ANTITRUST

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